What can be a consequence of mismanagement of transfer pricing?

Mismanagement of transfer pricing can indeed lead to higher corporate compliance costs. Transfer pricing refers to the pricing of goods, services, and intellectual property between related entities within a multinational corporation. When the transfer pricing is not managed properly, it can result in several complications, including audits and disputes with tax authorities. Tax authorities scrutinize transfer pricing practices closely to ensure that they reflect fair market value and comply with tax regulations.

If a corporation does not adhere to the appropriate transfer pricing guidelines, it may face penalties, additional taxes, and interest on underpaid taxes. This can lead to increased compliance costs as the company may need to engage legal and financial experts to correct mispricings and navigate audits effectively. Additionally, companies might have to invest more resources in documenting their transfer pricing arrangements to defend them against challenges from tax authorities, further inflating compliance expenses.

The other options—such as increased market competition, greater profits, or reduction of qualified employees—do not directly relate to the consequences of transfer pricing mismanagement in the same way. Improper transfer pricing primarily impacts the organization's financial obligations, specifically in terms of compliance with tax laws and regulations.