Question 1

What is the role of unused capacity within the selling division in the determination of a negotiated transfer price to another division?

Accepted Answer

The answer of What is the role of unused capacity...

Question 2

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

Accepted Answer

When transfer prices are lowered, it reduces the value of the product being imported into a country, which in turn reduces the customs duties and tariffs charged on the product by the importing country, benefiting the company. Therefore, companies have an incentive to lower transfer prices of their products to decrease the cost of importing into a country.

Question 3

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

Accepted Answer

Tariffs and customs duties increase the cost of importing products and can impact transfer pricing decisions of multinational companies. Companies may adjust their transfer prices to minimize the impact of these tariffs and duties on their profitability.

Question 4

Which of the following best describes an Advanced Pricing Agreement (APA)?
A) An agreement between a corporation and a foreign subsidiary as to what method, cost or market-based, will be used to set a transfer price for products.
B) A binding agreement between a foreign government's taxing authority, the IRS and a U.S. based corporation to help avoid disputes related to transfer pricing.
C) An agreement under IRS code Section 482 that requires a company to utilize market based transfer prices and to document them for tax return purposes.
D) A binding agreement between the IRS and a corporation to help avoid disputes related to transfer pricing.

Accepted Answer

An Advanced Pricing Agreement (APA) is a binding agreement between the IRS and a corporation to pre-determine the transfer pricing methodology, helping to avoid future disputes.

Question 5

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction. Suggest a strategy, including transfer prices, which will result in the lowest tax for the overall corporation.

Accepted Answer

The answer of A company has a plant in a...

Question 6

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.
A) it is illegal as well as unethical to do so
B) the tax authorities may suspect manipulation of records
C) it is almost impossible to keep the records straight and hard to reconcile the books
D) the shareholders do not approve of such methods and the market prices will decline

Accepted Answer

The answer of One of the problems in using one...

Question 7

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

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.

Question 8

Which of the following taxes does transfer pricing affect?
A) customs duties
B) taxes on dividends received
C) corporate income taxes
D) foreign property taxes

Accepted Answer

The answer of Which of the following taxes does transfer...

Question 9

Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?
A) transfer price redressal panel
B) grievance redressal forum
C) transfer price agreements
D) advanced pricing agreements

Accepted Answer

Advanced pricing agreements (APAs) help in avoiding costly transfer-pricing disputes between taxpayers and tax authorities. APAs are arrangements between taxpayers and tax authorities that establish the transfer-pricing methodology that the taxpayers will use for a specified period of time. This methodology is agreed upon in advance and provides certainty to both the taxpayer and the tax authorities, reducing the risk of disagreements and disputes.

Question 10

A company may choose to keep one set of accounting records for tax reporting and a second set for internal management reporting.

Accepted Answer

It is possible and sometimes common for a company to maintain separate sets of accounting records for tax reporting and internal management reporting. The tax reporting records are typically prepared in accordance with the requirements of tax laws, while the internal management reporting records may include additional information and be presented in formats that better serve the company's needs for decision making and planning.

Question 11

What does Section 482 of the U.S. Internal Revenue Code govern?

Accepted Answer

The answer of What does Section 482 of the U.S....

Quiz 22: Management Control Systems, Transfer Pricing, and Multinational Considerations

What is the role of unused capacity within the selling division in the determination of a negotiated transfer price to another division?

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

Which of the following best describes an Advanced Pricing Agreement (APA) ?

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction. Suggest a strategy, including transfer prices, which will result in the lowest tax for the overall corporation.

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.

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 ________.

Which of the following taxes does transfer pricing affect?

Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?

A company may choose to keep one set of accounting records for tax reporting and a second set for internal management reporting.

What does Section 482 of the U.S. Internal Revenue Code govern?