Measuring and optimizing corporate performance and tax is vital to a company’s survival and sustainable value creation. Multinational organizations face critical choices that shape their structure, guide business unit actions, set motivating targets, and balance corporate objectives and tax considerations. Organizations need effective internal information and compensation systems that help align business unit decisions and employees’ efforts with overall organizational performance.
Consultants who design such systems understand how human biases, heuristics, and adverse incentives can lead to short-termism, underperformance, and fraud. They advise on using instruments such as organizational planning, key performance indicators, and bonus plans to avoid these failures and achieve the organization’s strategic objectives. They also consult on how transfer prices help achieve coordination among business units while carefully considering the tax consequences. Transfer price choices optimal for coordination and incentivization may be suboptimal for tax planning.
Further, tax optimization through transfer prices can create value but poses tax compliance challenges caused by the allocation of the organization’s profit to the countries where it operates. Multinational organizations face an increasing volume, pace, and complexity of global tax reforms affecting international tax allocation, demanding increased tax process efficiency, and calling for the consultant’s expertise.
The purpose of this course is to illustrate and discuss the above issues. We study how
(1) organizations design and use measurement and incentive systems to achieve strategic objectives;
(2) heuristics, biases, and incentives influence decision-making and coordination;
(3) tax considerations affect transfer pricing decisions;
(4) global tax reforms change the landscape of financial and tax consultancy.