4/29/2016 3:50:08 AM
The assignment is all about Transfer Pricing-International. A subsidiary company positioned in country A buys $100 worth of goods. It then repackages, exports and vends such goods to the parent company, positioned in country B, for $200. The parent company vends the goods for $300. Thus, both entities encompass a $100 profit. Suppose that the income tax rate in country A is 20 %, whereas the tax rate in country B is 60 %.
Q1. Provided the above facts and suppositions, find out the company's combined (that is, worldwide) after-tax income for this transaction? (Show computations.)
Q2. Consider now a transfer-pricing approach in which the subsidiary vends the goods to the parent company for $280, and the parent company then vends the goods for $300. Find out the revised worldwide (that is, combined) after-tax profit for this transaction?
Q3. Determine the effect of the transfer-pricing decision whenever the income-tax rates for the two countries in question are equivalent?