how do a corporation leverage transfer pricing and how import duties might influence transfer pricing policies?

Expert Solution

Corporations leverage transfer pricing to make use of the tax rate arbitrage available across the geographies. A multi national company (MNC) will like to allocate higher profits in a geography which has lower incidence of taxes, thereby saving total tax outgo.

So, a higher transfer price ends up reducing the taxable income in the country of import and increases the taxable income in the country of export, that may have lower instances of tax.
Conversely, a lower transfer price ends up increasing the taxable income in the country of import and decreases the taxable income in the country of export.

Thus, this is the way MNCs leverage the transfer price to make use of tax arbitrage.

Transfer pricing not only impacts the level of direct taxes collected by the country but also the indirect taxes such as custom duties or import duties. Government collects such duties by levying certain %age on the import value. For import purposes, the transfer price has a direct impact on the determination of the value of the import.

A lower transfer price results in lower import value and hence lower will be the applicable customs / import duties.
A higher transfer price results in higher import value and hence higher will be the applicable customs / import duties.

jeff jeffy answered 4 months ago

TRANSFER PRICING/ PRICING POLICIES 1. The Glass Division of Sonnet, Inc., manufactures a variety of glasses...

TRANSFER PRICING/ PRICING POLICIES 1. The Glass Division of Sonnet, Inc., manufactures a variety of glasses and vases for household use. The vases can be sold externally or internally to Sonnet’s Florist Division. Sales and cost data on a basic ten-inch vase are given below: Unit selling price $2.50 Unit variable cost $1.10 Unit product fixed cost* $0.50 Practical capacity in units 500,000 *$250,00/500,000 During the coming year, the Glass Division expects to sell 350,000 units of this vase. The...

Discuss how beta of a corporation is assessed by analysts. Discuss how leverage can influence beta...

Discuss how beta of a corporation is assessed by analysts. Discuss how leverage can influence beta of corporation to yield leveraged beta. Provide a fictitious example for clarity. Use Yahoo finance or any credible source to find rate of return of a security in the past 20 years, and use this data to estimate the beta of the corporation by the two different methods. How does your estimated value compares to the value provided by the source? Make sure to...

The amounts that a company uses to account for transfer pricing may influence the financial statements...

The amounts that a company uses to account for transfer pricing may influence the financial statements readers and the decisions they make. The text describes the limitations on transfer pricing and the effects it may have on the financial statements of the organization. Describe the proper method of accounting for transfer pricing and the ethical decision making process that goes into it. Also, please describe the influence it may have on readers of the company's financial statements. Please provide an...

Class: ACCT-301 --> WEEK 7: TRANSFER PRICING AND CAREER RESEARCH TASK How is transfer pricing used...

Class: ACCT-301 --> WEEK 7: TRANSFER PRICING AND CAREER RESEARCH TASK How is transfer pricing used to assess performance? Have you ever worked with transfer pricing before? What kinds of companies would benefit the most by using this properly? How could they hurt themselves without using it or without applying it properly?

2. What is operating leverage and how does it influence a project?

1.（a）How might the fact that plants do not move influence their ability to adapt to climate...

1.（a）How might the fact that plants do not move influence their ability to adapt to climate change and other environmental changes? (b)What are the main functions of a seed? Why is it not surprising that seeds are an excellent source of nutrients? (c)Some pollen grains are dry and some are sticky. Which would you expect to be carried on wind and which on the body of a pollinator? Many people have pollen allergies. Suggest whether dry or sticky pollen would...

How might mindfulness influence caregiver or patient communication? How might mindfulness influence emotional preparedness, confidence, satisfaction,...

How might mindfulness influence caregiver or patient communication? How might mindfulness influence emotional preparedness, confidence, satisfaction, stress, burnout? FIRST: Base your initial response on evidence that meets the CRAAP test. Enlighten us about how mindfulness is being supported (or not) in the academic or professional literature.

How do multinational corporations utilize transfer pricing to manage your taxes? 1)In your answer ensure that...

How do multinational corporations utilize transfer pricing to manage your taxes? 1)In your answer ensure that you give reasons when you would transfer at a lower price. 2)In your answer ensure that you give reasons when you would transfer at a higher price.

Evaluate transfer pricing, by particularly paying attention to what is it, and how it works in...

Evaluate transfer pricing, by particularly paying attention to what is it, and how it works in the case of large multi-national corporations. Evaluate the criticisms of transfer pricing and the benefits and reasons for adopting this approach. Illustrative real examples could be used to help develop your argument. Just need short bullet points- confused on how it works with large multi-nationals

Explain and evaluate the concept of transfer pricing and how it relates to the above quotes....

Explain and evaluate the concept of transfer pricing and how it relates to the above quotes. You should address the issues including (but not limited to) the social, political, financial and ethical implications on business and broader society

Question