The effect of practicing transfer pricing and financial performance: Evidence from multinational corporations in the UAE

Abstract

This research aimed to determine if the financial performance of multinational firms in the United Arab Emirates (UAE) and the appraisal of transfer pricing are significantly correlated. The firms’ financial statements from 2012 to 2022 were used as the primary source data. The research used the panel least squares regression approach to analyze the data acquired from multinational firms in the UAE to assess the research hypotheses. A correlational research methodology was employed to investigate the hypothesized association between transfer price assessment factors and financial performance. The results showed an insignificant effect for bonus mechanisms, tax expenses, and return on assets as measurements of financial performance, but tunneling incentives have an insignificant relationship with return on assets. As a result, the research suggests that multinational corporations in the UAE enhance tax expenses, tunneling, and bonus mechanisms to achieve a higher rate of return on assets. Additionally, UAE multinational firms should reassess their bonus mechanism for optimal financial performance. The study's limitations and findings offer several investigation opportunities related to transfer pricing practices in the UAE, and future researchers could make a comparative study on transfer pricing in different countries.