Consequences of digitalization on the determination and auditing of tax transfer prices – The future of the transactional profit split method

  • Project coordination: Prof. Dr. Andreas Oestreicher
  • Project direction: Prof. Dr. Andreas Oestreicher, Prof. Dr. Jan Muntermann, Prof. Dr. Robert Schwager
  • Team: Annalena Form, Lisa Hillmann, Patrick Mewes, Matthias Palmer, Jan Röder, Florian Rottner
  • Duration: February 2018 – February 2019
  • Commissioned by: German Federal Ministry of Finance
  • Participating institutions: PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (Frankfurt am Main), PwC Strategy& (Germany) GmbH (Düsseldorf)
  • Goal:
    The fundamental goal of this research project is to obtain theoretical and empirical insights into the consequences of digitalization on business models, value chains, and in particular their value adding factors in multinational companies. To this end, it is necessary to identify and analyze economically the business models of classical industries and of typical representatives of the Germany economy with respect to changes of business models, value chains and intra-group transactions associated with the digitalization process.

    On this basis, we scrutinize the applicability of the current approach to tax transfer pricing to new business models and analyze the necessity of reform under the condition that transfer prices need to provide legal and planning certainty also in the digital world. Standardized approaches that may feature schematic elements are to be of particular significance in this work. Further, we will also investigate the economic consequences associated with digitalization on German enterprises, and the knock-on effects on tax revenue of the Federal Republic of Germany.

    From a methodological perspective, we intend to gain new insights on business models in the digital economy and the structures of global value creation associated with this (coordination and configuration of operational activities). Furthermore, on the basis of theoretical considerations concerning the “location where value is created”, we will scrutinize the applicability of the current approach to tax transfer pricing to digital business models and analyze the possible necessity of reform. We will assess the potential consequences of digitalization for company profits and tax revenue, making use of archived data with respect to standard points of interface within value chains of traditional business models, transaction volumes, transfer pricing methods, and market data, as well as by carrying out simulation calculations.

  • Findings: Nontechnical summary of most important findings.