From Transfer Pricing Risk to Substantive Tax Compliance: Mechanisms, Boundary Conditions, and Future Directions
Abstract
This systematic literature review examines the theoretical mechanisms, contextual conditions, and empirical evidence linking Transfer Pricing Risk (TPR) and Substantive Tax Compliance (STC). It synthesizes fragmented literature to explain how Multinational Enterprises (MNEs) manage the tension between transfer pricing optimization and substantive compliance within evolving global tax frameworks. Following PRISMA guidelines, this study reviewed peer-reviewed journal articles published between 2010 and 2024 from Scopus, Web of Science, ScienceDirect, and Emerald Insight. The final sample of high-impact studies was systematically analyzed using the Integrated Compliance Risk Framework (ICRF). The review identifies three mediating mechanisms linking TPR to STC: economic substance alignment, governance and internal control rigor, and regulatory scrutiny and enforcement capability. The shift from procedural to substantive compliance is moderated by institutional quality, firm-level risk appetite, digital tax administration, and transparency requirements such as CbCR. Aggressive transfer pricing increasingly involves complex structural arbitrage that satisfies formal documentation while challenging substantive intent. This study develops the ICRF by integrating Agency Theory, Institutional Theory, and the Slippery Slope Framework. It provides insights for risk-based tax audits and MNE tax strategies aligned with ESG standards.
Keywords: Base Erosion and Profit Shifting (BEPS), Multinational Enterprises, Substantive Tax Compliance, Systematic Literature Review, Transfer Pricing Risk
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