TRANSFER PRICING IN MULTINATIONAL ENTERPRISES FOR THE PROVISION OF DOMESTIC SERVICES, USING A TIME-DRIVEN ACTIVITY-BASED COSTING

Abstract

As business internationalisation intensifies around the world, Lithuania is also seeing an increasing number of service centres established by foreign companies. One of the priority management areas of multinational companies is transfer pricing, which is used to implement the company's overall strategic objectives, to control separate responsibility centres and to evaluate the performance of their managers. Taking into account the importance of the time criterion in service companies, due to the large proportion of human resources consumed in the provision of services, this study has developed a model of transfer pricing for the internal provision of services using a time-driven activity-based cost accounting system. In order to propose the most appropriate pricing method for service transactions between related parties, an analysis of academic research results and related party pricing regulations was carried out, which showed that the most suitable pricing method for such transactions is the cost-plus method. Based on the applicable legal requirements for related party transactions and considering the principles of the cost-plus approach for price determination, a pricing model for intra-service transactions was developed which could be used by multinational companies in setting the price for related party transactions of services. Since the correct allocation of costs to cost accounting objects is essential for service pricing decisions, the paper presents the developed methodology for implementing the TD ABC system.