2. Two transfer pricing principles exist in Schneider Electric: Markdown: selling price is the reference, The transfer price is set in a way to leave a targe t margin in the selling entity Cost-plus: Cost of goods sold is the reference. The transfer price is set in a way to leave a target margin in the production entity CASE STUDY: Country A The production unit is based in country A Cost of goods sold =150 Enterprise Income Tax(EIT)=20% Country B The trading entity is based in country B Selling price =300 EIT=40% You have a choice between setting transfer price on the basis of markdown or cost-plus Markdown: you leave 30% target profit in Country B (transfer price equals 70% of selling price), the rest of the profit is made in country A Cost-plus: you set transfer price at cost of goods sold +4% ARE WE FREE TO SET TRANSFER PRICES ACCORDING TO TAX SAVING SCHEMES? (1)