Divisionalization and transfer pricing: A review

This paper reviews the various transfer-pricing systems that have been commonly suggested for divisionalized companies. The properties of an ideal system are discussed and the advantages and disadvantages of each practical system are examined in relation to these properties. The fiscal restrictions that act on multinational companies are also considered. Finally, the contribution of operational research in establishing transfer pricing systems is discussed and criticized. Some very recent work is briefly looked at in the hope that this will form a basis for a more substantial contribution in the future.