Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country. If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to ________.
A) stop producing in the low tax rate country
B) stop marketing in the high tax rate country
C) establish a low transfer price when the producing unit sells to the marketing unit
D) establish a high transfer price when the producing unit sells to the marketing unit

Question

Quizplus · Accepted Answer

To minimize its worldwide tax liability, Global Giant would aim to shift profits from the high-tax country to the low-tax country. One way to do this is by establishing a high transfer price when the producing unit sells to the marketing unit in the high tax country. By doing so, the profits will be shifted to the low tax country where the producing subsidiary is located, resulting in lower tax liability. Therefore, the best choice is D.

Global Giant, a Multinational Corporation, Has a Producing Subsidiary in a Low