Question: When dealing with transfer pricing between different countries with different tax rates and different willingness to pay, how do you determine the optimum transfer price of a product from the corporation's point of view?
Example:
A company has a product that costs $525,000. A division in the U.S., normally can sell at $650,000, but they have had a client back out of a deal and so have a product on hand.
Europe will pay up to $600,000 and expects to sell at $650,000
Asia will pay up to $575,000 and expects to sell at $675,000.
- From the point of view of the corporation, what would be the profit maximizing transfer price?
- Would the U.S. division want a different deal?