Opportunities and challenges faced by multi-national companies in Essay - 1

Opportunities and challenges faced by multi-national companies in setting an appropriate transfer price - Essay Example This strategy creates both the opportunities and challenges to the multinational companies. One of the major challenge that face multinational companies is complying with transfer pricing rules which is a costly affair itself. However, when times are tough, tax laws are adjusted, an aspect that increases the cost of compliance. With every change in the tax laws, the multinational companies had to interpret the law, apply it effectively and change their internal systems (Kuan,  WorldTrade Executive (Concord, & Mass.) 2005). For instance, they have to automate the processes and hire tax professionals who will track these changes on a regular basis. This requires immense spending by these firms. Managing and producing a detailed trail of audit which involve a step by step of the overall process of transfer pricing is demanding and time-consuming (Wintzer 2007). Therefore, many companies that lack effective internal strategies find it difficult to take up this process. In addition, these companies face a challenge of using a third party because they lack an in-depth understanding of their businesses and operations. In some cases, the top officials use this opportunity to embezzle funds from the organization, thereby affecting their positions in the market. Transfer pricing provides an opportunity for the multinational companies to exercise their â€Å"multinationality† (Bakker & Obuoforibo 2009). In case these transfers do not exist, the concept of multinational companies to exist in different markets would not apply at all. Instead, domestic businesses would dominate each local market in the country. Therefore, transfer pricing plays a significant role in enabling these firms to transfer their resources to other countries some of which are used to support struggling subsidiaries which are located in countries experiencing intense