Transfer Pricing in an Imperfect Market: A Case Study of Productivity Accounting

Abstract

An interesting and innovative application for productivity accounting was implemented at the South African Mint. The SA Mint Company is a wholly owned subsidiary of the South African Reserve Bank, and is responsible for producing the country's coins. The currency coins are sold directly to the SARB, which determines the quantity of each coin to be produced. As is typical in many transfer pricing situations, the SARB feared they would bear the cost of inefficiencies in the SA Mint. A total factor productivity accounting system was implemented, which could isolate increases in prices, better utilization of capacity, and better efficiency of operations. In this way, the Mint was able to show that the prices of the coins to the SARB were not increasing as a result of internal inefficiencies. This paper examines the use of productivity accounting for transfer pricing at the SA Mint in order to extract learning points and to establish if the approach is generally feasible.

Keywords: Transfer pricing, productivity accounting, imperfect markets

JEL Classification: M40