This study examines how multinational firms balance tax compliance requirements andperformance control requirements in transfer pricing practices. Previous research hasmainly focused on either tax compliance or transfer pricing as a performance control tool,while less attention has been given to how companies manage the interaction betweenthese objectives in practice.

The study is based on agency theory, institutional theory, and upper echelons theory.These theories are used to understand how compliance pressures, managerial incentives,and decision-makers influence transfer pricing practices. The theoretical framework alsoincludes the arm’s-length principle, OECD transfer pricing methods, and prior researchon performance evaluation, incentives, and single or dual system transfer pricing.

A qualitative research design was applied, using semi-structured interviews with CFOs,controllers, transfer pricing specialists, consultants, and tax auditors. The empiricalmaterial was analyzed using an abductive approach, in which theory and empiricalfindings were continuously compared throughout the analysis.

The findings show that tax compliance is the main priority in transfer pricing systems,with companies either separating tax reporting from internal performance evaluation orusing a unified system to simplify compliance and reduce regulatory risk. Opinions alsodiffer by professional background.

The results suggest that transfer pricing is not widely regarded as a performance controltool in practice. Furthermore, the tension between tax compliance and performancecontrol appears to be more decoupled and less interactive than previous research hassuggested, with tax compliance being the dominant priority.