The economic impact of multinational transfer pricing in Third World countries: The case of Iran

This dissertation examines the economic impact of multinational corporation (MNC) transfer-pricing system in the Third-World countries. Iran serves to illustrate the problem that is caused by MNC transfer-pricing system in a Third-World nation. Transfer-pricing system is a technique that is primarily used in international business as practiced by multinational corporations. Under this method the price of goods and services is not determined by the local market structure, but by a highly sophisticated internal sales system within subsidiaries of an MNC. The system offers opportunities to manipulate the market prices according to the changing demands in various countries. MNCs can thus maximize their global profits by reducing income taxes, tariffs and foreign currency exchange rate risks. The economic dependency of Third-World nations on advanced industrialized countries leaves them highly vulnerable to international transfer pricing. These practices have an adverse impact on the balance-of-payments of less developed nations, and subsequently the poor people of these nations suffer unfairly. The case of Iran demonstrate the exploitation of a nation through its raw materials since the beginning of this century. The rich oil deposits in the southern region of the country attracted the interest of powerful multinational oil companies, and subsequently many other international trading companies followed. The heavy influx of initially cheaper foreign goods destroyed many local producers. The gradual price increases on these imports created substantial economic and social conflicts that escalated during the 1978-1979 political upheaval and eventually toppled the regime of the Shah. In this study the economic impact of the transfer-pricing system by MNCs is also examined from the humanities\u27 perspective. In this regard, this study contends that the burden of moral responsibility is on the MNCs rather than on the poor people in developing countries. The legal issues of the transfer-pricing system are reviewed. These are not heavily emphasized, because the legal issues remain a gray area in many advanced industrial countries. Finally the study considers measures to control MNCs. For example, the Organization for Economic Cooperation and Development (OECD) reported the danger of intracompany transfer pricing and indicated some rules and approaches to remedy the problems. The United Nations has also developed codes of conduct on transnational corporations with reference to transfer-pricing system. These codes suggest that a global approach to ethical standards may be the effective solution