Question

Assume that a multinational corporation (MNC) is (i) shipping product from Brazil (Country B) to Australia (Country A), and (ii) the tax rate in Country B < tax rate in country A, in answering the following questions:

1. If MNC managers wish to minimize (taxes + tariffs), how should they go about setting the transfer price. [Use a graph to motivate your answer]

2. If MNC managers wish to minimize (taxes), how should they go about setting the transfer price [Provide thumb-rules as part of your answer]

3. If MNC managers wish to minimize (tariffs), how should they go about setting the transfer price [Indicate which country imposes the tariffs]

Answer 1

Hi

The answer of the following question is given below as follows :

So according to the data given in the question we can easily states that, there is a transfer within the country and there are some tax benefits: -

Now In the given case, the product is shipped from Brazil (country B) to Australia (country A) and the tax rate in country B <tax rate in country A

Ans.A). If multinational managers are to minimize (taxes + duties), they should set the transfer price in such a way that the cost of goods is high on high-tax land and the cost of goods is low on taxed land. low, leading to fewer implications of taxes.

Ans.B) So If multinational companies manage ways to minimize (taxes), they should set a transfer price as high on high-tax land and low on low-tax land: -

I) The transfer price in Australia is high to charge expenses and avoid a high tax rate

II) Now let's Collect all the profits from the product in Brazil minus the taxes applicable.

Ans.C) If the manager of a multinational changes to minimize (fees), he should set the transfer price as close as possible to the cost of the product. To minimize the value of the fee, administrators reduce the number of transfer prices and make all goods taxable in their home country regardless of tax rates.

I hope I have served the purpose well.

Thanks