Ireland's introduction of transfer pricing: a new institutional theory perspective
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Collins, T. & Mulligan, E. (2014) 'Ireland's Introduction of Transfer Pricing: A New Institutional Theory Perspective. Accounting, Finance and Governance Review, Volume 21, (1 and 2), Special issue on Taxation
This article explores the rationale for Ireland’s introduction of transfer pricing legislation in 2010. For most multinational corporations, tax planning involves structuring the business in a way that justifi es the location of profi ts in low-tax jurisdictions, underpinned by transfer pricing methodologies/legislation. This may involve the use of tax haven locations or the use of hybrid structures to reduce a group’s effective tax rate. The continuing facilitation of such structures by tax authorities may impact on Ireland’s legitimacy internationally. Such an appeasement may bring into question the State’s ‘organizational identity’ (Dhalla and Oliver, 2013, p. 1804). Drawing on new institutional sociology (NIS), a theoretical framework is established of the context and processes connected with designing, endorsing and diffusing transfer pricing policies. It draws on the work of Dillard, Rigsby and Goodman (2004) and Mulligan (2008, 2012) in developing the framework. NIS is ‘primarily concerned with an organization’s interaction with the institutional environment, the effects of social expectations on the organization, and the incorporation of these expectations as refl ected in organizational practices and characteristics’ (Dillard et al., 2004, p. 508). The evidence in this study was collected using semi-structured in-depth personal interviews with thirteen senior tax advisors. The recurring evidence emerging from the research was that Ireland’s need to achieve and protect its international legitimacy as a mature fi scal jurisdiction underpinned the rationale for the introduction of transfer pricing. Both coercive and normative isomorphism forces were also at play in the introduction of the rules, emanating from mounting institutional pressure from various parties including the Organisation for Economic Co-Operation and Development (OECD),1 Group of Twenty (G20), International Monetary Fund (IMF) and other governments.