ISSN 2066-8325 Saphira Publishing
The Quarterly Journal of
Volume 2 Issue 4 4th Quarter Fall, 2010
Oeconomics of Knowledge www.saphira.ro/ok
October, 2010
Page I
Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Oeconomics of Knowledge, About
Oeconomics of Knowledge e—publication
that
aims
to
is an open-access scholarly bring
together
diversity
of
researchers, experts and practitioners who are working in the area of knowledge, computer science and economy. The published articles are peer-reviewed by prominent professors and specialists that are members of the Advisory Board.
Academy
of
Economic
Studies,
for
example,
is
considered to be a remarkable representative of superior economic studies in Romania. The journal is committed to publish valuable papers written
by
well
recognized
specialists.
The
articles
are
accompanied by abstract, keywords and references. The
journal
content
is
licensed
under
a
Creative
Commons Attribution 3.0 Unported License. There are four English written issues per year that can be freely accessed and downloaded through the publication web site.
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Oeconomics of Knowledge, Evaluation of Articles
Any submitted paper should not be published elsewhere and should not be under simultaneous evaluation by another journal or conference. Together with the article content, the abstract, keywords, references and details about the authors are mandatory. After removing the name of the authors, the paper is sent for evaluation to two reviewers of the Advisory Board. In the case when the reviewers do not arrive to the same conclusion, the Editorial Board may decide if the article will be published or rejected. The reviewers are evaluating the following points: - excellence in content; - originality and relevance; - technical accuracy; - significance of references.
The Advisory Board can suggest modifications to the original text, case in which the revised version will start again the evaluation procedure from the beginning. A notification containing the review resolution is sent back to the authors.
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Oeconomics of Knowledge, Editorial Board
Editors Felician Alecu, Academy of Economic Studies, Bucharest, Romania Dora Chayenne, Senior Editor, Saphira Publishing House, Romania
Editorial Team Razvan Dina, Academy of Economic Studies, Bucharest, Romania Felician Alecu, Academy of Economic Studies, Bucharest, Romania
Advisory Board Traian Surcel, Academy of Economic Studies, Bucharest, Romania Radu Marsanu, Academy of Economic Studies, Bucharest, Romania Paul Pocatilu, Academy of Economic Studies, Bucharest, Romania Ana Tanasescu, Petroleum Gas University, Ploiesti, Romania Aura Patrascu, Petroleum Gas University, Ploiesti, Romania Teodora Alecu, International Tax Advisor, Bucharest, Romania Cristina Voicu, Transfer Pricing Expert, Bucharest, Romania
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Inside this Issue Editor’s Note Mitali PATHAK
1 2—12
Managing Organizational Conflict Cristian CIUREA, Rodica BĂTĂGAN
13—22
Collaborative Educational Systems Teodora ALECU
23—31
Transfer pricing in 2010 and forwards Call for Papers
32
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Editor’s Note Felician ALECU, Editor PhD, University Lecturer, Department of Economic Informatics Faculty of Cybernetics, Statistics and Economic Informatics Academy of Economic Studies, Bucharest, Romania E-mail: alecu[at]ase[dot]ro; Web Page: http://alecu.ase.ro
Dear reader, Thank you for your interest in Oeconomics of Knowledge journal. I hope you will find it useful and interesting. In the context of the Information Society, the global economy is heavily focused on knowledge used to produce economic benefits. The human capital of today involves a high accumulation of knowledge used to meet the organizational goals. This is why the majority of employees actually represent information workers contributing to the shared intelligence. The Oeconomics of Knowledge journal publishes quality articles written by scientists who want to prove their deep understanding on the topic of knowledge society impact over our uncertain economy. Specialists all over the world are encouraged to submit their
high-minded
papers
to
be
published
inside
the
Oeconomics of Knowledge journal. Thank you!
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Managing Organizational Conflict
Dr. Mitali PATHAK Faculty, Board of Studies The Institute of Chartered Accountants of India, New Delhi E-mail: mitalikhosla[at]yahoo[dot]co[dot]in
Abstract:
The concept of conflict, being an outcome of behaviours, is an integral part of human life. Wherever there is a difference of opinion there are chances of conflict. Managing conflict effectively demands multifarious professional abilities and acumen. To resolve and manage conflict, the organisations must understand the causes, theories, approaches and strategies of conflict management. Conflict and stress are interlinked as they are dependent on each other. It is a psychological phenomenon that requires a high level of attention and thorough understanding. It appears that there is a very little margin to remain unaffected from the clutches of stress in contemporary time.
Keywords: conflict, stress, management, organization, strategy.
Introduction Conflict in the workplace can be incredibly destructive to good teamwork. Managed in the wrong way, real and legitimate differences between people can quickly spiral out of control, resulting in situations where co-operation breaks down and the team's mission is threatened. This is particularly the case where the wrong approaches to conflict resolution are used. Stress is basically the impact of one object on
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
another. There are three terms which are used synonymously to denote this phenomenon: stress, strain, and pressure, however, there are thin differences in these terms. The amount of stress an event will cause in an individual will depend on the way that individual thinks about or appraises the event. If there's conflict in your workplace it's normal - but it's not easy. Conflict is identified over and over as a major cause of workplace stress. Unresolved conflict is the computer virus of the workplace. In an organization an early symptom is a drop in productivity. The need of the hour in front of the organization is to back up and look at own thoughts and to resolve conflict. It is observed that numerous studies have been attempted to understand the nuances of conflict management.
Nature and Scope of Stress and Conflict Sociological studies have shifted from the notion of power as a source of conflict to the impact conflict has on workplace stress and the resultant levels of productivity. Schuler’s definition (1980 cited in Arnold, et al. 1998) is one that is frequently adopted: “stress is a dynamic condition in which an individual is confronted with an opportunity, constraint or demand related to what they desire and for which the outcome is perceived to both uncertain and important”. With regard to sources of stress, researchers have identified different aspects of a person's work environment, which have been implicated as sources of potential stress. Researchers have, for instance, found that high levels of role ambiguity (extent of a person's uncertainty about aspects of his or her job, including priorities, expectations, etc.) and role conflict (the degree to which the job is characterized by conflicting demands) are associated with low levels of job satisfaction and poor mental health (Ross, 1995). An additional source of stress in the work environment is work
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overload. Several studies have shown that perceptions of work overload have significant negative relationships with measures of job satisfaction and more general measures of wellbeing (Caplan, et al. 1975; Parkes, 1991). There is also evidence to suggest that if one’s abilities and knowledge are not being utilized, it can result in another source of stress. Caplan, et al. (1975), for instance, found that under-utilization of skills was associated with high levels of both job-related boredom and job dissatisfaction, while other studies have linked under utilization to psychological strain and depression (Orpen and King, 1986). It is due to all the stress dimensions which give finally raise to the conflicts (Ganster, et al. 1986). While conflict is inevitable in groups and organizations due to the complexity and interdependence of organizational life, theorists have differed about whether it is harmful or beneficial to organizations. Early organizational conflict theorists suggested that conflict was detrimental to organizational productivity (Pondy, 1967; Brown, 1983). It focused much of their attention on the causes and resolution of conflict (Schmidt and Kochan, 1972; Brett, 1984). The research findings have shown that conflict is associated with reduced productivity and dissatisfaction in groups (Gladstein, 1984; Wall and Nolan, 1986) and that the absence of strife within top management teams and decision-making groups is related to increased performance at the group and organizational levels. In contrast, some sociologists have theorized that conflict is beneficial under some circumstances (Tjosvold, 1991; Van de and De Dreu, 1994). There are evidence which has demonstrated that conflict within teams improves decision, quality and strategic planning, financial performance, and organizational growth (Eisenhardt and Schoonhoven, 1990).
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Psychological Dimensions of Stress and Conflict Research on communication, group interaction processes, and diversity in groups and organizations has also indicated that conflict can be beneficial as well as detrimental (Wagner, et al. 1984; Eisenhardt and Schoonhoven, 1990). From a psychological perspective, the investigation of stress in the workplace supports this dialectic. Stress is not necessarily the result of work demands, being anxious or having a heavy workload. Stress can be the result of a lack of fit between a person (in terms of their personality, aptitudes and abilities) and the environment, and a consequent inability to cope effectively with the various demands. Although, mainly considered as an adverse condition, psychologists do not always consider stress a negative function. Selye (1976) cited in Simmons and Nelson, 2001) distinguished between eustress (a pleasant experience, a culmination of a superior physical/mental effort) and distress. Stress in any context is usually associated with constraints and demands. He identifies that two conditions are necessary to the translation of potential stress into actual stress which involves 1) uncertainty over the outcome and 2) importance attached to the outcome. Robbins, et al. (1998) describes this relationship thus: regardless of the conditions, it’s only when there is doubt or uncertainty about whether the opportunity will be seized, the constraint removed, or the loss avoided that there is stress. That is, stress is highest for those individuals who perceive that they are uncertain as to whether they will win or lose and lowest for those individuals who think that winning or losing is a certainty. But importance is also critical. If winning or losing is an unimportant outcome, there is no stress. Robbins et al. (1998) classified a number of factors relevant to stress as either potential sources of stress and consequences of stress. However, differences in individual and organizational factors in the form of management style act as filters to both the experience of stress and the consequences of stress. Central to this line of argument is that
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people
with
different
dispositions
tend
to
create
different
social
environments for themselves. Thus, a person’s “situation” depends not only on external conditions, but also on his or her own approach to people and problems.
Conflict Management Strategies resolving Conflicts in a Planned Manner Organizational factors with the potential to cause stress include: work overload; pressures that are placed upon the worker to avoid errors or complete tasks in a limited period; or demanding/insensitive superior. These stressful factors can stem from: task demands (issues often of a work organization nature related to an individual’s job); role demands (pressures placed on an individual relative to the role/function they play in an organization); interpersonal demands (pressures/difficulties caused by work and related relationships with other employees); organizational structure (level of hierarchy, the effectiveness of the structure in facilitating
work
relations/performance);
organizational
life
stage
(different pressures emerge in the four stages of the organizational life cycle establishment, growth, maturity, decline); and organizational leadership (managerial style/relations of the organization). Conflict management styles can then have an all-encompassing effect on work life in organizations, by impacting the degree to which an employee experiences ongoing conflict. Therefore, a number of scholars have developed typologies of conflict management styles using the conceptual foundation provided by Blake and Mouton’s (1964) managerial grid. The two dimensions have been labeled “desire to satisfy one’s own concern” and “desire to satisfy other's concern” (Thomas, 1976 cited in rahim,1983), or “concern for self” and “concern for other” (Rahim and Bonoma, 1979). A person’s conflict style is said to incorporate both dimensions in varying degrees. The High concern for both self and other
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defines a “collaborating” or “integrating” style, while low concern for both self and other defines an “avoiding” style. High concern for self, but low concern for other describes a “competing” or “dominating” style. A low concern
for
self,
but
high
concern
for
other
describes
an
“accommodating” or “obliging” style. Along with conflict management styles, the organization's ability to maintain coherent and integrated production through organizational norms also serves as a filter to negative stress (Roethlisberger and Dickson 1939; Dunlop 1958). Organizational norms specify that management is responsible for maintaining a coherent and effective system of production that allows employees to meet the demands of their jobs (Whitener, et al. 1998). Coherent organizational procedures are essential for organizational effectiveness (Bass, 1985). Researchers in the area of organizational coherence and integration point to a number of positive consequences (Moore, 1962; Smith, 2001). These include increased citizenship on the part of employees and the creation of a more cooperative and less conflicting workplace (Pfeffer, 1998). Hence, organizational coherence can play a prominent role in mitigating both formal and informal worker resistance. If organizational coherence and integration are missing, employees may define management as illegitimate (Halaby, 1986). Employees also may feel that their individual and collective interests in secure and stable work are threatened (Hodson, 2001). As a result, stress levels increase to a negative state. It has been widely established that the conflict management strategies of the executives has a definite impact on the work performance of the individuals. However, conflict management strategies adopted by the executives help in reducing their stress levels. But, as to what strategy should be adopted by an individual at a particular stress level is a matter of concern. Crampton, et al. (1995) have emphasized that stress is found in all aspects of life. Hans Selye, a pioneer in stress research, has defined stress as “the nonspecific response of the body to any demands made upon it”. It is considered to be an internal state or
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reaction to anything we consciously or unconsciously perceive as a threat, either real or imagined Clarke (1988). Stress can evoke feelings of frustration, fear, conflict, pressure, hurt, anger, sadness, inadequacy, guilt, loneliness, or confusion Cavanagh (1988). Individuals feel stressed when they are fired or lose a loved one (negative stress) as well as when they are promoted or go on a vacation (positive stress). While many individuals believe they must avoid stress to live longer. It is rightly said that it is the salt and spice of life and that to have no stress we would have to be dead person. In this difficult economy, one may find it harder than ever to cope with challenges on the job. Both the stress we take with us when we go to work and the stress that awaits us on the job are on the rise-and employers, managers, and workers all feel the added pressure. While some stress is a normal part of life, excessive stress interferes with the productivity and reduces the physical and emotional health, so it’s important to find ways to keep it under control. Fortunately, there is a lot that one can do to manage and reduce stress at work. Segal, et al. (2008), in their study highlighted that the troubled economy may feel like an emotional roller coaster. “Layoffs” and “budget cuts” have become bywords in the workplace, and the result is increased fear, uncertainty, and higher levels of stress. Since job and workplace stress grow in times of economic crisis, it’s important to learn new and better ways of coping with the pressure. The ability to manage stress in the workplace can make the difference between success and failure on the job. The emotions are contagious, and stress has an impact on the quality of your interactions with others. The better an employee is managing the stress, there will be more positive affect those around and the less other people’s stress will have a negative affect. In order to assist managers in understanding conflict, a number of factors regarding individuals and organizations have been identified. Differences in individual characteristics have been shown to
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impact the development of conflict and its potential resolution. Eaton and Bradley (2008) promulgated that individual differences in stress may arise from many sources and the role of gender is one of them where it is generally seen that women endorsed the use of emotion-focused coping strategies more than men, even when perceived stressfulness was controlled.
Conclusions Conflict experience
in
workplace
the
stress.
communication Workplace
also
causes
communication,
employees like
any
communication, is basic to the interaction and subsequent performance of the participants. “Workplace communication is different from social communication due to the contrived hierarchy one finds in the workplace. One communicates in the workplace with employees who are in subordinate positions as well as with those who occupy equal or superior positions within the company. Each type of communication requires different levels of formality. Like any form of communication, workplace communication has differing styles. Styles of communication, coupled with the workplace hierarchy, create and increase the stress levels. Finally, workplace diversity leads to communication problems and stress. As the workplace becomes more diversified, methods of communication must become more precise.
References [1]
Bass,
B.M.
(1985).
Leadership
and
Performance
beyond
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Blake, R. R. and Mouton, J. S. (1964). The Managerial Grid: Key Orientations for Achieving Production through People, Houston, TX: Gulf.
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Brett,
J.M.
(1984).
“Managing
Organizational
Conflict”,
Professional Psychology: Research and Practice, Vol. 15, No.1, pp. 644-678. [4]
Brown,
L.
(1983).
Managing
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Dunlop, J. (1958). Industrial Relations Systems, Carbondale: Southern Illinois University Press.
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Eisenhardt, K. and Schoonhoven, C. (1990). “Organizational Growth: Linking Founding Team, Strategy, Environment, and Growth among U.S. Semiconductor ventures, 1978-1988”, Administrative Science Quarterly, Vol. 35, No.1, pp. 504-529.
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Gladstein, D. (1984). “A Model of Task Group Effectiveness”, Administrative Science Quarterly, Vol. 29, No.1, pp. 499-517.
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Houston, B. K. (1981). “Psycho physiological Responsivity and the
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Matthews, K. A. and Brunson, B. I. (1979). “Allocation of Attention and the Type A Coronary-Prone Behavior Pattern”, Journal of Personality and Social Psychology, Vol.37, pp. 20812090.
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Moore, W. (1962). The Conduct of the Corporation, New York: Random House.
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Pfeffer, J. (1998). The Human Equation: Building Profits by Putting People First, Boston: Harvard Business School Press.
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Rahim, M. Afzalur and T. V. Bonoma (1979), “Managing
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Organizational
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Rahim, M.A.(1983). Rahim Organizational Conflict Inventories, Palo Alto: Consulting Psychologists Press.
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Robbins, S., Millett, B., Cacioppe, R. and Waters-March, T. (1998). Organisational Behaviour: Leading and Managing in Australia and New Zealand, Sydney: Prentice Hall.
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Roethlisberger, F. and Dickson, W. (1939). Management and the Worker, Cambridge: Harvard University Press.
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Smith, T. W. and Anderson, N. B. (1986). “Models of Personality and Disease: An Interactional Approach to Type A Behaviour and Cardiovascular Risk”, Journal of Personality and Social Psychology, Vol.50, pp. 1166-1173.
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Smith, V. (2001). Crossing the Great Divide: Worker Risk and Opportunity in the New Economy, Ithaca: Cornell University Press.
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Performance by Conflict Stimulation”, International Journal of Conflict Management, Vol. 5, No. 1, pp. 211. [23]
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Collaborative Educational Systems
Cristian CIUREA Department of Economic Informatics Academy of Economic Studies, Bucharest, Romania E-mail: cristian.ciurea[at]ie[dot]ase[dot]ro
Rodica BĂTĂGAN General School No. 5 Rm. Valcea, Romania E-mail: rbatagan[at]yahoo[dot]com
Abstract:
This paper starts describing the key concepts of collaborative systems and the impact of this to educational systems. There are presented the main properties and quality characteristics for the collaborative educational systems. For the main quality characteristic, like portability and complexity are presented different types of indicators for an educational system. The article analyzes different ways to increase the efficiency and the performance level in collaborative educational systems.
Keywords: collaborative systems, educational system, quality characteristics, metric.
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Collaborative systems Collaborative systems are profoundly changing how research and creative activity are undertaken, for example by enabling distributed research, grid and cloud computing, simulation, or virtual worlds. They are also changing the organization of science, research, learning and innovation, by linking the creativity of peoples and allowing institutions to collaborate, pool distributed computing power and exploit new ways of disseminating information. Collaborative systems are also transforming platforms for delivering news, entertainment and other information. The collaborative systems affect every activity and suppose changes in all domains: in administration, in business, in education, in culture and in the manner of working. Collaborative systems represent an interdisciplinary field at the intersection
of
economy,
science,
management,
and
sociology.
Collaboration involves organizations that have a common mission and join together to form a new structure (Arba 2005). A collaborative system is the system in which many users or agents are engaged in a shared activity, often in distanced locations. In the large family of distributed applications, collaborative systems are distinguished by the fact that the agents work together to achieve a common goal and have a great need to interact with each other in the sense that they share information, change requests, etc. (Dobrican 2005) After
criterion
type
of
application,
collaborative
systems
are
classified into:
collaborative systems in education: they are applied in the educational field and aimed at evaluating and enhancing the educational process performance;
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
collaborative systems of defense: they are encountered in the military
field
and
are
characterized
by
strict
rules
of
organization and functioning;
productive
collaborative
systems:
designed
to
increase
production capacity and product quality in different units producing goods and services;
collaborative banking systems: they are analyzed to determine factors affecting the banking system and its components.
The educational system, seen as a collaborative system, consists of three subsystems: physical, computer based and energy. The physically subsystem consist of educational institutions, general school inspectorates, Ministry of Education, money and people. There is a very good communication and cooperation between these elements, provided by the staff from educational institutes and general school inspectorates and/or Ministry of Education. The staff from Ministry of Education develops rules, procedures, circulars, on which employees from educational institutions operate their activity. From the students’ and parents' perspective, each educational institution is a separate unit, but from the Ministry of Education and general school inspectorates, all educational institution work as a whole. The computer based subsystem, consisting of all software and hardware
resources
available
to
the
educational
institution
for
educational and administrative purposes. The energy subsystem, consisting of the flow of electricity, Internet and intranet connections, alternative channels of communication. When collaborative systems are used voluntarily, one of the key drivers to success is the manner in which users feel their experience with
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
the system: if they like, if the system offers them what they expect from him, if they are able to communicate freely and naturally with other participants, if they wish to recommend it to others (Ivan et all 2007).
Figure 1—The physically subsystem of the educational system
Collaborative systems offer a new means of organizing and sharing resources. Collaborative writing systems are major benefits to reduce the time of completion for a particular task, reduce errors, get some different viewpoints and obtain a precise text. For collaborative writing of a document is a specific strategy: users can write independently or jointly to the document, as their work will be reviewed by another group of members. Collaborative systems facilitate communication, processing, and transmission of information by electronic means and this plays a capital role.
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On the other hand collaborative systems improve the educational systems. Collaborative systems help the teacher and the interlocutors to work together even if they are in different place. For example a training scenario can be imagined as follows: the instructor and trainee are in different locations, but both work in the same virtual space, space that contains the 3D anatomical models for a chemistry class. Each person interacts with each other through virtual space using a simulator that describes the physical and logical behavior of virtual objects on stage. The
interaction
is
based
on
voice,
gestures,
actions
surgical
demonstration and step by step tutorials.
Quality characteristics systems The
most
important
of
collaborative
quality
characteristics
educational of
collaborative
educational systems are: portability and complexity. Portability refers to the ability of educational system components to be transferred from one work environment to another. Portability for educational collaborative system aims:
Portability of printed documents, refers to the degree of standardization and recognition at international level of models for each printed document;
Portability
of
management,
involves
the
transfer
of
a
management model from a geographic area to another;
Portability of procedures, involves measuring the generality degree of the procedures developed in a educational system and applying them in other educational systems or collaborative systems, depending on circumstances;
Portability of staff refers to employees transferring from one
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educational institution to another and from one geographical area to another area;
Portability of processes, refers to the possibility of carrying out operations in various other conditions of work than usual and by others;
Portability of software is the translation of various software components of the information system from a workstation to another.
The
collaborative
educational
system
is
a
system
with
high
complexity, with a large number of components and a large variety of links between them. The complexity of the educational system is given by the operations they carry out, but also by the collaboration between different educational institutions from different countries and by the alignment to standards imposed by the regulations in this worldwide field. The collaborative educational system has components that can be represented by using a graph, the nodes being represented by these components, and the arcs by the links between components. The aggregated complexity of the collaborative educational system, CG, is given by the complexity of the subsystems that form it, CSS, and by the complexity of linkages between subsystems, CLS, as follows:
CG = α * CSS + β * CLS, where α + β = 1 and α, β Є (0, 1) are importance coefficients; (2)
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
In
the
collaborative
educational
systems
are
the
following
components:
The material, which includes buildings, equipment and other property;
The energy, consists of flow of electricity, Internet and intranet connections, alternative channels of communication;
The
information,
comprising
all
software
and
hardware
resources available to the educational institutions;
The human,
including
the
educational
institutions human
resources, the categories of personnel and the qualification levels of them.
Educational institution's results depend largely on the quality of staff and the efforts of each employee separately. For each position of the educational institution, the department of human resources is seeking people with a degree of training higher than required by the job in question. The goal of this recruitment is the elimination of cases in which an employee fails to meet certain requirements or to resolve certain issues related to its activity. Training of employees at work must be done at least every five years. Regarding the collaborative educational systems, an indicator for increasing the efficiency is the level of staff training. Considering the qualifications period of five years, the minimum number of qualifications that get an employee is one in five years and the maximum number is one per year or five qualifications over five years. The maximum number of training sessions that the need to be financed, over a period of five years, is calculated according to the relationship:
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
NT = 5 * NP where: NT is the total number of training or qualifications NP is the numbers of people employed and which are eligible for training.
The degree of increasing the level of staff and teachers training, GP, is determined according to the relationship: GP
NC NT
where: GP is the degree of increasing the level of staff training; NC is the number of persons qualified in the five years; NT is the total number of training or qualifications supported by the educational institution
If we take into account the duration of trainings, in the formulas for calculation of the indicators will appear another two variables:
Dmin = minimum duration of training, expressed in months;
Dmax = maximum duration of training, expressed in months.
In this case, the total number of training sessions supported by the educational institution within five years, expressed in months, is given by the relationship:
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NT = 5 * NP * Dmax
The degree of increasing the level of staff training will be determined with the same formula, with the difference that the number of persons qualified in five years is weighted with the duration of qualifications for each person. This indicator shows the collaborative educational system in terms of level of staff training and the quality of human resources. Collaborative systems should work better than other types of systems.
Conclusions The development of collaborative systems conduct to increase their complexity and the global character of the economy is designed to determine, also a global character for many of the collaborative systems. From the information point of view, to these global collaborative systems must correspond global performance indicators, procurement systems scratchy and data conversion procedures, to transform heterogeneous information into homogeneous entries for aggregate indicators, defined in the metrics of collaborative systems. Based on these aggregated indicators should decide appropriate to the global level, intermediate level and the execution level of any collaborative system organized into hierarchical levels. A collaborative system creates an environment where people can work better together, can share information without the constraints of time and space, being characterized by three fundamental aspects: joint activities, sharing environment and way of interaction.
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References [1]
Arba,
R.
2005,
International
"Collaborative
Workshop
Electronic
Collaborative
Marketplace",
Support
Systems
in in
Business and Education, Cluj-Napoca, pp. 11. [2]
Austin, Choi, J., Rosen, J., Maini, S., Pierce, M. and Fox, G. 2008, Collective Collaborative Tagging System, “IEEE Grid Computing Environments Workshop, GCE '08”, November 12-16
[3]
Chang, V. 2008, Integrated use of Web Technologies to deliver a secure collaborative web portal, School of Electronics and Computer Science, University of Southampton, United Kingdom
[4]
Dobrican, O. 2005, `An Example of Collaborative System`, in International
Workshop
Collaborative
Support
Systems
in
Business and Education, Cluj-Napoca, pp. 48. [5]
Ivan, I., Boja, C. and Ciurea, C. 2007, Metrici ale sistemelor colaborative - teorie si practica, Editura ASE, Bucureşti
[6]
Sapena, O., Onaindia, E., Garrido, A. and Arangu, M. 2008, A distributed CSP approach for collaborative planning systems, Engineering Applications
of Artificial Intelligence
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Transfer pricing in 2010 and forwards
Teodora ALECU, PhD International Tax Advisor, Bucharest, Romania E-mail: twa2twa[at]yahoo[dot]com
Abstract:
As the economic downturn continues, and apparently there is no glimmer of hope for growth earlier than 2011-2012, governments worldwide are coming under growing financial pressure. Many companies have seen their profits slashed and some have gone out of business. A significant number of individuals are earning less, and unemployment is rising. All this means less tax coming in. In response, tax authorities have intensified their efforts to collect revenue, conducting more frequent audits and clamping down on tax avoidance and evasion. Moreover, the recession has caused an increase in events which under any circumstances would encourage the tax authorities to conduct audits. These include companies making substantial losses, or closures, which frequently put the authorities on alert in case such occurrences are being used to mask tax liabilities.
Keywords: transfer pricing, tax authorities, financial pressure.
Increasing global focus on transfer pricing Dealing effectively with tax authorities is complicated due to various differences in transfer pricing regulations and practices. One of the major differences existing between various jurisdictions is that although the overriding principle of the arm’s-length standard, as set forth in the guidelines
of
the
Organization
for
Economic
Co-operation
and
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Development (OECD), enjoys almost world wide acceptance; local country approaches vary considerably. Given the need to meet the requirements of two or more tax authorities with sometimes conflicting rules, transfer pricing becomes an exercise in risk management rather than simple compliance. With each new announcement of transfer pricing enforcement initiatives, the development of transfer pricing policies that meet corporate objectives, satisfy each of the tax authorities at issue, and reduce the risk of double taxation becomes increasingly more complex. Later in this article we detail some major changes of transfer pricing regulation and practices of some economic regions throughout the globe (i.e. the Americas, Asia Pacific and Europe).
Transfer pricing countries
developments
in
the
European
The work of the EU Joint Transfer Pricing Forum (JTPF) has already resulted in two Codes of Conduct—one on the European Arbitration Convention and one on transfer pricing documentation requirements— and in guidelines on APAs within the European Union. Currently the JTPF is also discussing the treatment of intercompany services, including the issue of shareholder or stewardship services as more guidance is needed on the documentation requirements relating to the charging of such services within a group. Moreover, authorities from various jurisdictions are increasingly active in developing and enforcing additional transfer pricing related regulations. Besides the activity of the JTPF with respect to European transfer pricing, there is also increased attention by the tax authorities in the EU
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
to combining custom and transfer pricing both from a documentation point of view as well as to establish the value of goods transferred. Countries such as Austria, Italy have enforced tough domestic legislation on transfer pricing. The OECD Transfer Pricing Guidelines principles are customized into a local framework, making very difficult to harmonies with the previous applicable legislation. As we have seen so far, transfer pricing audits are becoming increasingly common worldwide, as many governments develop both a wider legislative base and greater experience in analyzing transfer prices therefore seeking to protect their respective tax bases. Romania is no exception to this global trend. In recent months there has been a significant increase in the number of transfer pricing audits being carried out, and in the severity of the tax authorities in investigating all aspects of a company’s transfer pricing policies. A transfer pricing audit is particularly frequent when a refund claim is made, for instance for VAT. Even before the downturn, the Romanian authorities had been tightening enforcement of transfer pricing rules. In January 2004 legislation was introduced which strengthened the rules, but for the first few years afterwards enforcement was lax, particularly as there were no clear documentation requirements for companies to demonstrate how they applied the “arm’s length principle.” However, further legislation clarifying these requirements was introduced in 2007 and 2008, making it far easier for the tax authorities to ensure that companies are applying arm’s length transfer prices. Transfer pricing scrutiny has expanded from group and business restructuring to other complex, unique transactions, such as transactions with intangibles.
Year 2011 will be a year of focus to intangibles,
royalties, service centers and cost sharing agreements.
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Transfer pricing in the Americas Despite the geographic proximity of the countries in the American continents, transfer pricing issues faced by taxpayers in the various jurisdictions of the region are not at all consistent. Taxpayers face issues and challenges in the United States that are very different from those they face in the Latin America and somewhat different from those they face in Canada. Canada has earned a reputation as one of the countries with the toughest transfer pricing audits. Canadian companies have seen audit adjustments that slash outbound royalties and require high level of operating profit on the assumption that the Canadian market has unique characteristics that would garner substantial profits at arm’s-length. At the same time, the Canadian Revenue Agency (CRA) recently announced that it would restrict the use of APAs where the taxpayer is under audit. Previously, taxpayers seeking to settle future periods through an APA could also request that the APA terms be “rolled back” to include years under audit. Now in Canada they must seek separate resolution of the pre- and post-audit periods. The Obama administration has initiated several measures in order to enhance the enforcement capacity of the IRS such as the increase of the budget for transfer pricing regulations enforcement in 2010 to $ 5.5 billion (7.6 percent more that in 2009) amount which will be directed especially for the training of 800 new employees in transfer pricing and international taxation and for conducting transfer pricing audits in the territory. The 800 new employees will be hired in addition to the 700 employees budgeted for 2009. This significant investment is made to upgrade the current fiscal enforcement bodies to a more effective system that can tax as much American profit as possible in a fair, transparent manner.
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The U.S authorities have recently introduced two different types of penalties which apply for transfer pricing purposes: the transactional penalty which is pertaining to a transaction between related parties and the net adjustment penalty which refers to the net result of an entity carrying out transactions with foreign related entities. Also it has revised the issues which may be covered in an advance pricing agreement (APA) to include attribution of profit to a permanent establishment and certain sourcing issues, providing an MNE with an important alternative to a transfer pricing audit to address these issues. This different approach to APAs may indicate a different level of confidence in the APA process of the two tax administrations in the United States and Canada. While in the USA transfer pricing regulations which have been introduced decades ago are being constantly refined, in Latin America transfer pricing rules are still relatively new, while the positions of the Latin American tax authorities in relation to transfer pricing are still developing. It has been observed that the international standard for transfer pricing promoted by the OECD (the arm’s-length standard) has been adopted by all Latin American countries, with the important exception of Brazil (where certain arm’s length profitability levels have been set domestically for various industries and levels of a value chain). Uruguayan tax authorities are currently drafting rules regarding the content required in the contemporaneous documentation and the tax return. Therefore, transfer pricing documentation and information filing requirements are expected to be applicable to taxpayers starting in fiscal year 2009. APAs are also available in a number of Latin American countries, but not in Brazil or Argentina. However, with the exception of Mexico, which
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
has concluded numerous unilateral and bilateral APAs, practical APA experience
is
rather
limited
in
Latin
America.
This
offers
both
opportunities and challenges: opportunities, because our experience elsewhere is that early adopters of APAs often reach very reasonable agreements with the tax authorities; challenges, because taxpayers may need to make substantial investments in time and resources when working with tax authorities that lack APA experience. Even though APAs are still relatively new in Latin America, their benefits are widely recognized and, given the increasing transfer pricing activity in this region, they are likely to become more common in the future.
Transfer pricing in Asia Pacific Five of the ten toughest tax authorities in terms of transfer pricing are from the Asia Pacific region: Japan, Australia, India, Korea, China. As the Asia Pacific region continues to grow, ever-increasing levels of transnational business have led to tax authorities increasing audit activity and expanding documentation requirements. In line with or exceeding the growth in cross border activities, there have
been notable
increases in audit activity and
corresponding
adjustment amounts. Tax authorities now have more ground to cover, and governments have given them more legislative tools to assist them in this effort. Many Asia Pacific transfer pricing regulations seem to be falling into line with the OECD approach. Besides the four Asia Pacific countries that are already OECD members (Japan, Australia, New Zealand, and The Republic of Korea), China, India, and Indonesia have been designated as “Enhanced Engagement Countries.” Other Asia Pacific countries generally accept most OECD methods, and about half of the Asia Pacific countries
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
have a best-method rule. However, some differences are certainly emerging between Asia Pacific countries and the OECD guidelines and these differences cannot be said to follow any particular regional pattern. Unlike European countries, which use forums such as the OECD and the EU Joint Transfer Pricing to standardize their transfer pricing rules, Asia Pacific countries tend to follow their own paths. In terms of transfer pricing enforcements, it has been observed that although audit activity varies by country in this region, many authorities seem to be gearing up for even more activity. Vietnam and Sri Lanka, for example, have recently introduced transfer pricing rules; Australia, Thailand, The Republic of Korea, and Japan all have recently seen an increase in audit activity; and Singapore’s tax authorities recently signaled that they intend to step up their audit efforts. The result of this is that Asia Pacific tax authorities are seen as the thoughts in the world. While we might expect most tax authorities to target foreign corporations in an effort to make sure their government gets a fair share of taxable revenue, the Japanese National Tax Authority (NTA) goes in a different direction by making many, if not most, of its assessments against Japanese parent companies. China faces a different situation. Until recently, the priority was to attract as much foreign investment as possible, with less focus on applying the rules stringently. In addition, China has few large multinationals of its own, so this results in a situation where the Chinese have total transfer pricing adjustments that are only a fraction of the Japanese, and will generally affect foreign companies much more than Chinese companies. In terms of APAs, nearly all Asia Pacific countries now allow advance rulings, with India having no provision, and the Philippines in the process of making them available. In Sri Lanka while the rules provide for APAs, the Inland Revenue Department has yet to facilitate such agreements.
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Transfer pricing in Europe, Middle East and Africa (EMA) Within the African continent transfer pricing is already receiving increased attention in South Africa and Israel by the respective tax authorities. It is expected that attention for transfer pricing and related issues will also increase in the next year(s) in other countries in Africa as well as the Middle East. Examples of African countries who are developing or that have recently developed (and implemented) transfer pricing legislation are Tanzania, Uganda, Kenya, and Nigeria In Europe on the other side, the economic slowdown has boosted companies’ search for feasible facilities to reform their costs via optimization of supply and value chains. A significant number of these opportunities can be found in former Eastern European countries, where various tax or regulatory incentives are available. The search for efficiencies increased the number of intragroup, cross border transactions, and further on increased attention on transfer pricing in former Eastern European countries. Due to this increase in reorganization activities, the OECD has recently released a long awaited draft report on the transfer pricing aspects of business restructurings. Unfortunately, the document provides no guidance on which valuation methods should be used in what situations. Following this trend, Germany has implemented as of 2008 new legislation specifically focused on business restructurings. However in certain instances, the German legislation appears to apply stricter interpretation to business restructurings than the OECD report. This may result
in
double
taxation
in
instances
where
the
German
tax
administration follows the German rules. In line with increased transfer pricing activities, more countries in
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
the EMA region are implementing APA programs providing the taxpayer with an opportunity to obtain advance certainty on the arm’s-length character
of
the
selected
transfer
pricing
method
and/or
the
remuneration ultimately applied.
Conclusions The tax authorities of virtually all the major market economies have implemented transfer pricing rules, often accompanied by documentation requirements with significant penalty provisions. In the past it was possible to focus transfer pricing compliance on the requirements of just one country, but now multinational companies must respond to an everchanging landscape of court decisions, rule-making, regulations, and pronouncements. With an increasing range of challenges, transfer pricing policies and documentation have to be designed—to the extent possible— to satisfy the requirements of each tax authority that has an interest in the transaction.
References [1]
www.oecd.org
[2]
http://ec.europa.eu/taxation_customs/taxation/company_tax/ transfer_pricing/forum/index_en.htm
[3]
Transfer Pricing in the International Context of Economic Downturn, Teodora Alecu, Romanian Business Digest, September 2009.
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Call for Papers The Oeconomics of Knowledge is looking for original and valuable articles in the area of knowledge, computer science and economy that are not yet published or that are not currently under review by other journals or conferences. Together with the article content (maximum 10 pages, Microsoft WORD or RTF formats), the abstract, keywords references and details about the authors are mandatory. The text should
follow
the
Chicago
Style
requirements
(www.docstyles.com/cmsguide.htm). The articles will be submitted via email to alecu[at]ase[dot]ro. Any submitted paper will be evaluated according to the rules described in the Evaluation of Articles section (Page II). The layout of the accepted papers will be changed in order to meet the design and format of the journal. Authors are responsible for the entire content of the published articles and they are required to state that the papers are original and not previously submitted or issued elsewhere. The complete journal content is licensed under a Creative Commons Attribution 3.0 Unported License. The Oeconomics of Knowledge does not pay royalties.
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Oeconomics of Knowledge, Volume 2, Issue 4, 4Q 2010
Oeconomics of Knowledge Volume 2, Issue 4, 4Q, Fall 2010 www.saphira.ro/ok
ISSN 2066-8325
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Contact person: Alecu Felician, alecu[at]ase[dot]ro
