Question

Should Minimizing Taxes Be the Only Goal of Transfer Pricing? POINT When the members of a corporate family, such as a parent corporation and subsidiary, are lo- cated in different countries, transfer pricing affects taxes owed, and, therefore, company profits. This makes transfer pricing a very large matter ofoperational importance, but also creates a sig- nificant corporate tax issue. Consider the following scenario: A company subsidiary is located in Country A, where the tax rate is 30 percent. The subsidiary builds a product at a cost of $100 and then exports the product to the parent company, located in Country Bat a transfer-selling price of $300. The parent company sells the product for $500. Thus, each company, the parent and sub- sidiary, earns a profit of $200. The tax rate in Country B is 60 percent, which is much higher than the tax rate of30 percent in Country A. The companys consolidated, after-tax profit is $220, com- puted as shown:
media%2F91a%2F91ae64f7-33db-407e-8f2b-d5
0 0
Add a comment Improve this question Transcribed image text
Request Professional Answer

Request Answer!

We need at least 10 more requests to produce the answer.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the answer will be notified once they are available.
Know the answer?
Add Answer to:
Should Minimizing Taxes Be the Only Goal of Transfer Pricing? POINT When the members of a...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
  • Assume a wholly-owned subsidiary in country A (tax rate = 32%) makes 500 units of a...

    Assume a wholly-owned subsidiary in country A (tax rate = 32%) makes 500 units of a product for $200 each and sells them to the parent company in country B (tax rate = 24%) for 360 USD each. The parent then sells them for 480 USD each in country B. The company has no other costs or sources of revenue. Given this information, answer the following questions. 1- How much corporate income tax will be paid in Country A? 2-If...

  • Control, Decision Making, and Reporting Control is a key issue for international companies, and the approaches...

    Control, Decision Making, and Reporting Control is a key issue for international companies, and the approaches used for decision making and reporting can have important implications for the effectiveness of strategy implementation and the extent to which performance goals are achieved. Successful organizations must use controls to put their plans into effect, evaluate their effectiveness, make desirable corrections, and evaluate and reward or correct executive performance. The challenges of exercising effective control are more complicated for an international company than...

  • C LIO, customer profit U ty, quality, just-in-time systems, investment decisions, transfer pricing, and performance evaluation....

    C LIO, customer profit U ty, quality, just-in-time systems, investment decisions, transfer pricing, and performance evaluation. Each of these topics invariably has product costing planning and control, and decision-making perspectives. A command of the first 11 chapters will help you master these topics. For example, Chapter 12 on strategy describes the balanced scorecard, a set of finan- cial and nonfinancial measures used to implement strategy that builds on the planning and control functions. The section on strategic analysis of operating...

  • (9) You are the CEO of a baked-goods plant located in the South Bronx. You have...

    (9) You are the CEO of a baked-goods plant located in the South Bronx. You have gotten into the doughnut business and your marketing VP suggests using a brand name that suggests that the doughnuts are made in the old fashioned way.  She suggests using the brand name, "Grandma's Old-Fashioned Bakery" to evoke the image of a simple bakery using wholesome ingredients. What should you do? (10) You are Chairman of the Board of a fairly successful company. Many of...

  • As a subsidiary manager, would you consider Regent’s use of the beginning-of-the-year exchange rate for budget...

    As a subsidiary manager, would you consider Regent’s use of the beginning-of-the-year exchange rate for budget setting and average-of-the-year rate for budget tracking appropriate? Why? What changes in the budgeting process can Regent make to prepare foreign subsidiary managers to better respond to the effects of inflation and exchange rate changes? It was January 2016, and Lee Morgan, CEO of Regent, Inc., was getting ready to review the financial performance of Regent’s subsidiaries. In recent years, this exercise had become...

  • Case 11-3: Carmichael Corporation Discussion Questions: What impact will Brisson’s decision to manufacture MS-7 have on...

    Case 11-3: Carmichael Corporation Discussion Questions: What impact will Brisson’s decision to manufacture MS-7 have on the cost structure of Stimgro for Carmichael? Should Amanda Tellford do anything at this stage? What alternatives are open to Amanda Tellford? What are the advantages and disadvantages of each alternative? What is the cost structure for Stimgro and the margin? Since Stimgro is very profitable, with a good margin, why does it matter if the cost of MS-7 increases? Main Question: As Amanda...

  • I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this p...

    I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this paper and some conclusions and contributes of this paper. I need this for my Finishing Project so i need this ASAP please ( IN 1-2-3 HOURS PLEASE !!!) Budgetary Policy and Economic Growth Errol D'Souza The share of capital expenditures in government expenditures has been slipping and the tax reforms have not yet improved the income...

  • Simply Cayenne Company: A Comprehensive Case In Measuring A Firm's Cost Of Capital (Boudreaux, D., S. Rao, and P...

    Simply Cayenne Company: A Comprehensive Case In Measuring A Firm's Cost Of Capital (Boudreaux, D., S. Rao, and P. Das, 2014) THE CASE Patricia Hotard, the Chief Executive Officer of Simply Cayenne Refining and Processing Company (SCRPC), picked up the telephone to call Jimmy Breez, the firm's financial manager. Breez had sent her an email earlier that morning suggesting that the capital budgeting committee should get together prior to the scheduled Investment Decision Committee meeting that is in one week...

  • It is based on the multiple-choice question pasted below. Use the current 21 percent tax rate....

    It is based on the multiple-choice question pasted below. Use the current 21 percent tax rate. (28) in the current year, Acom, Inc., had the following items of income and expense! Sales $500,000 Cost of sales 250,000 Dividends received 25,000 The dividends were received from a corporation of which Acom owns 30%. In Acom's current yoar income tax rotum, what amount should be reported as income before special deductions? A. $525.000 B. $508,750 C. $275,000 D. $250.000 The correct answer...

  • JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per...

    JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT