Transfer Pricing; International Taxation Harris Company has a manufacturing subsidiary in Singapore that produces high-end exercise equipment for U.S. consumers. The manufacturing subsidiary has total manufacturing costs of $1,500,000, plus general and administrative expenses of $350,000. The manufacturing unit sells the equipment for $2,500,000 to the U.S. marketing subsidiary, which sells it to the final consumer for an aggregate of $3,500,000. The sales subsidiary has total marketing, general, and administrative costs of $200,000. Assume that Singapore has a corporate tax rate of 33 percent and that the U.S. tax rate is 46 percent. Assume that no tax treaties or other special tax treatments apply.
Required What is the effect on Harris Company’s total corporate-level taxes if the manufacturing subsidiary raises its price by 20 percent to the sales subsidiary?
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