Integration of the profit-split transfer pricing method in the design of global supply chains with a focus on offshoring context

Supply chain design with transfer pricing for tangible and intangible elements.Realistic method to determine transfer prices (profit split).Model suited for the offshoring context.Insights regarding the integration of transfer pricing in the model. This paper presents an optimization model for the design of global supply chains where the emphasis is made on transfer pricing for both tangible and intangible elements. We adopt the profit split transfer pricing method which is dictated by OECD guidelines and may be accepted by fiscal authorities. The proposed model is particularly suited for the offshoring context. In addition to transfer pricing, the model integrates several relevant decisions such as the location of tangible and intangible activities. Intangible activities refer to R&D and supplier management. Experimental analyses are conducted in order to prove the feasibility and the solvability of the model and to show the impacts of transfer pricing on supply chain decisions and profits.