One reason for companies to set transfer pricing policy is to move profits from one division to
Question:
One reason for companies to set transfer pricing policy is to move profits from one division to another. This may be done for competitive reasons, when the goal is to challenge division management to act as a standalone company in order to compare a division with its competitors. Another reason to move profits is for tax purposes or other cost savings for the company as a whole.
Selling Division sells 36,200 units to Buying Division. Selling Division's tax rate is 15%, and Buying Division's tax rate is 25%. Market price is $68.20 per unit, and it costs Selling Division $28.10 to produce each unit.
Overall Corporation abides by tax authority guidelines and can support the use of market-based transfer pricing and cost plus 20% transfer pricing
Which transfer pricing method should Overall Corporation use when Selling Division sells to Buying Division to take advantage of the best tax rate?
Auditing A Practical Approach with Data Analytics
ISBN: 978-1119401742
1st edition
Authors: Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton