Question

XV2) ( ny Points) Matsushita Electric Company has production and marketing divisions throughout the world it produces a product in Ireland, where the tax rate is 20%, and transfers it to a marketing division in Japan, where the income tax rate is 50% Assume Japan places an import tax of 2% on the product and that import duties are not tax deductible in either Ireland or Japan. The variable cost of the product is 250 Euros and the full cost is 500 Euros. Suppose the company can legally select a transfer price anywhere between the variable and the full cost What transfer price should Matsushita use to minimize taxes? Explain why this is the tax- A) minimizing transfer price? 8) Compute the amount of taxes saved by using the transfer price in problem A instead of the transfer price that would result in the highest taxes

Answer 1

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