Transfer Pricing and Business Restructuring in the Manufacturing Industry: A Study of Korean and Indonesian MNEs

This research considers business restructuring and transfer pricing behaviour of Korean principal multinational manufacturers and Indonesian subsidiary manufacturers by applying the polycorporate network of Gunther Teubner's view of hybrid relational contracts. Under this view, the agent acts in its own interest, but at the same time it attaches and performs its business on its duty and loyalty to its principal. Korean multinational firms create a transaction price with their subsidiaries that in most cases is based on non-market prices. On the other hand, Indonesian subsidiaries act less independently in most of their business activities, and the decisions taken are highly depend on their principal. Regarding the transfer pricing issue, it shows that the common disputes of both types of manufacturer are quite similar; payments for the use of intangible property and the technical aspects of assessing the arm's length nature of the price, such as the use of comparables, the most appropriate method to assess comparability and the proof of economic benefit arising from the transaction performed. The differences between the two types of business entities concern the ability to bear the business risk in light of their manufacturing characteristics.