TY - JOUR
T1 - Optimal level of transfer pricing for profit sharing
T2 - a Lagrange regularized game theory approach
AU - Clempner, Julio B.
N1 - Publisher Copyright:
© 2019, Springer Science+Business Media, LLC, part of Springer Nature.
PY - 2019/9/15
Y1 - 2019/9/15
N2 - This paper suggests a new game-theoretic method for computing the optimal level of transfer pricing for a multidivisional firm cooperatively organized in multiple controlled divisions. We are considering the transfer pricing problem as a collaborative strategy to reduce global taxation consisting in fixing multidivisional enterprises prices in such a way that a global optimum is attained. The goal is to allocate the firm-wide profit between divisions bearing in mind that transfer prices are globally determined and they are not negotiable. Legal restrictions of the problem correspond to bounds that establish the maximum/minimum transfer price determined by the arm’s length principle and the applicable tax rates. To deal with this problem, this paper suggests a cooperative game theory approach. The solution of the game results in a strong Nash equilibrium. For computing the strong Nash equilibrium we employ a proximal/gradient method. We use a Lagrange regularization approach for ensuring the existence of a unique strong Nash equilibrium for the transfer pricing problem. An application example validates our approach.
AB - This paper suggests a new game-theoretic method for computing the optimal level of transfer pricing for a multidivisional firm cooperatively organized in multiple controlled divisions. We are considering the transfer pricing problem as a collaborative strategy to reduce global taxation consisting in fixing multidivisional enterprises prices in such a way that a global optimum is attained. The goal is to allocate the firm-wide profit between divisions bearing in mind that transfer prices are globally determined and they are not negotiable. Legal restrictions of the problem correspond to bounds that establish the maximum/minimum transfer price determined by the arm’s length principle and the applicable tax rates. To deal with this problem, this paper suggests a cooperative game theory approach. The solution of the game results in a strong Nash equilibrium. For computing the strong Nash equilibrium we employ a proximal/gradient method. We use a Lagrange regularization approach for ensuring the existence of a unique strong Nash equilibrium for the transfer pricing problem. An application example validates our approach.
KW - Cooperative game theory
KW - Multidivisional firm
KW - Strong Nash equilibrium
KW - Transfer pricing
UR - http://www.scopus.com/inward/record.url?scp=85063282078&partnerID=8YFLogxK
U2 - 10.1007/s11081-019-09420-x
DO - 10.1007/s11081-019-09420-x
M3 - Artículo
SN - 1389-4420
VL - 20
SP - 833
EP - 852
JO - Optimization and Engineering
JF - Optimization and Engineering
IS - 3
ER -