Question

Green Oaks is a manufacturing company located in Germany, and then sells it through a special division in the UK. In particular, the UK division imports X34 type shoe products from Germany and then sells them for £ 950 per pair (imports of similar products can be sold at £ 850) The UK division has a tax rate of 40% while the tax rate in Germany is assumed to be 30%. The manufacturing cost of X34 in Germany is € 720 There is a 10% import duty included in the transfer price to be paid by the UK division and can be recognized as an expense when calculating profits in the UK. The tax laws of the two countries allow transfer prices to be recognized at the cost of manufacturing in Jerrman and selling prices of comparable imports in the UK. Based on this information, you are asked to analyze the profitability of the German, UK and Green Oaks divisions if the transfer price uses: German division manufacturing costs and the selling price of comparable imports

Answer 1

Particulars	German	UK	Green Oaks Division
Sale price (Transfer Price)	850.00	950.00	950.00
Less: Manufacturing cost at Germany	720.00	-	-
Less: Transfer Price (including Customs)	-	850.00	720.00
Profit before tax	130.00	100.00	230.00
Tax @ 30% (Germany) Tax @ 40% (UK)	39.00	40.00	79.00
Profit after tax	91.00	60.00	151.00

All figures are in Euro