An Examination of the Effectiveness of Transfer Pricing Mechanisms in Nigerian Multinational Companies: A Study of Unilever Nigeria Plc
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Background of the Study
Transfer pricing refers to the pricing of goods, services, and intangible assets transferred between divisions of multinational companies (MNCs). Effective transfer pricing mechanisms are crucial for tax compliance, resource allocation, and profit maximization. In Nigeria, companies like Unilever Nigeria Plc face stringent regulations under the Federal Inland Revenue Service (FIRS) guidelines to ensure that transfer pricing aligns with arm’s-length principles (Adedayo & Chukwu, 2023).
The growing complexity of global operations and tax environments makes transfer pricing a critical area for multinational companies. This study examines the effectiveness of transfer pricing mechanisms at Unilever Nigeria Plc, focusing on their compliance, fairness, and contribution to operational efficiency.
Statement of the Problem
Despite regulatory frameworks, transfer pricing remains a contentious issue in Nigeria due to allegations of tax evasion and profit shifting by multinational companies. Unilever Nigeria Plc, like other MNCs, faces scrutiny over its transfer pricing practices, which may affect its reputation and financial stability (Ibrahim & Eze, 2024). This study investigates the effectiveness of transfer pricing mechanisms at Unilever Nigeria Plc, highlighting challenges and opportunities for improvement.
Objectives of the Study
- To evaluate the transfer pricing mechanisms used by Unilever Nigeria Plc.
- To determine the effectiveness of these mechanisms in ensuring compliance and operational efficiency.
- To identify challenges associated with transfer pricing practices in Nigerian MNCs.
Research Questions
- What transfer pricing mechanisms are employed by Unilever Nigeria Plc?
- How effective are these mechanisms in ensuring compliance and operational efficiency?
- What challenges affect the implementation of transfer pricing practices in Nigerian MNCs?
Research Hypotheses
- Transfer pricing mechanisms significantly enhance compliance and operational efficiency at Unilever Nigeria Plc.
- Challenges in implementing transfer pricing mechanisms negatively impact their effectiveness.
Scope and Limitations of the Study
The study focuses on the transfer pricing practices of Unilever Nigeria Plc. Limitations include restricted access to financial data and confidentiality concerns regarding sensitive pricing information.
Definitions of Terms
- Transfer Pricing: The pricing of transactions between divisions of the same multinational company.
- Arm’s-Length Principle: A standard that ensures transfer prices are consistent with market conditions.
Multinational Companies (MNCs): Corporations operating in multiple countries.
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