Enterprise X manufactures pianos in Malaysia. Enterprise Y distributes these from Hong Kong. Both X and Y are 100% owned by Enterprise Z. When selling pianos on the market, Z has no control on the price at which one piano is sold. Reason is that prices are set by supply and demand. Currently, the market price for one piano is USD 5,000. However, Z does control all transactions between X and Y. X is taxed in Malaysia and Y is taxed in Hong Kong. The corporate tax rate in Hong Kong is 16.5%. In Malaysia, it is 25%. The direct / indirect costs of manufacturing one piano are USD 1,000. Consider two scenarios. Scenario 1: The price X charges Y, for the supply of one piano, is similar to the market price USD 4,000. Scenario 2: X charges Y a non-market price of USD 2,000. Explain meaning of associated enterprises What is a controlled transaction? Explain the concept of transfer price using the example
Enterprise X manufactures pianos in Malaysia. Enterprise Y distributes these from Hong Kong. Both X and Y are 100% owned by Enterprise Z. When selling pianos on the market, Z has no control on the price at which one piano is sold. Reason is that prices are set by supply and demand. Currently, the market price for one piano is USD 5,000. However, Z does control all transactions between X and Y. X is taxed in Malaysia and Y is taxed in Hong Kong. The corporate tax rate in Hong Kong is 16.5%. In Malaysia, it is 25%. The direct / indirect costs of manufacturing one piano are USD 1,000.
Consider two scenarios. Scenario 1: The price X charges Y, for the supply of one piano, is similar to the market price USD 4,000. Scenario 2: X charges Y a non-market price of USD 2,000.
- Explain meaning of associated enterprises
- What is a controlled transaction?
Explain the concept of transfer price using the example
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