How transfer prices can affect a supply chain strategic decision

One of the most important decisions in global supply chain management is whether to outsource or in‐source production. This decision is made by reference to a set of quantitative and qualitative models. However, one factor has frequently been overlooked: the tax consequences that result from multi‐national company transfer prices. The purpose of this paper is to fill the void by: 1) explaining how transfer prices affect tax obligations; 2) discussing the arm's length standard that governs global transfer pricing; 3) demonstrating how global tax differentials can affect the offshoring decision. We conclude with suggestions for future research.