Transfer Pricing—International Example A subsidiary company located in country A purchases $100 worth of goods. It then repackages, exports, and sells those goods to the parent company,located in country B, for $200. The parent company sells the goods for $300. Therefore, both entitieshave a $100 profit. Assume that the income tax rate in country A is 20%, while the tax rate in countryB is 60%.Required1. Given the above facts and assumptions, what is the company’s combined (i.e., worldwide) after-taxincome for this transaction? (Show calculations.)2. Consider now a transfer pricing approach in which the subsidiary sells the goods to the parent companyfor $280 and the parent company then sells the goods for $300. What is the revised worldwide (i.e.,combined) after-tax profit for this transaction? (Show calculations.)3. What is the effect of the transfer pricing decision when the income tax rates for the two countries inquestion are equal?4. What limitations exist regarding the setting of transfer prices for multinational transfers?
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
Transfer Pricing—International Example A subsidiary company located in country A purchases $100 worth of goods. It then repackages, exports, and sells those goods to the parent company,
located in country B, for $200. The parent company sells the goods for $300. Therefore, both entities
have a $100 profit. Assume that the income tax rate in country A is 20%, while the tax rate in country
B is 60%.
Required
1. Given the above facts and assumptions, what is the company’s combined (i.e., worldwide) after-tax
income for this transaction? (Show calculations.)
2. Consider now a transfer pricing approach in which the subsidiary sells the goods to the parent company
for $280 and the parent company then sells the goods for $300. What is the revised worldwide (i.e.,
combined) after-tax profit for this transaction? (Show calculations.)
3. What is the effect of the transfer pricing decision when the income tax rates for the two countries in
question are equal?
4. What limitations exist regarding the setting of transfer prices for multinational transfers?
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