Chat with AI
Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993 Exercise 21
International Transfer Prices: Ethical Issues
Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges raw metal, cuts it, and then ships it to the United States where the company's Gear Division uses the metal to produce finished gears. Operating expenses amount to $5 million in Finland and $15 million in the United States exclusive of the costs of any goods transferred from Finland. Revenues in the United States are $37.5 million.
If the metal were purchased from one of the company's U.S. forging divisions, the costs would be $7.5 million. However, if it had been purchased from an independent Finnish supplier, the cost would be $10 million. The marginal income tax rate is 60 percent in Finland and 40 percent in the United States.
Required
a. What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($7.5 million and $10 million)
b. Is it ethical to choose the transfer price based on the impact on taxes
Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges raw metal, cuts it, and then ships it to the United States where the company's Gear Division uses the metal to produce finished gears. Operating expenses amount to $5 million in Finland and $15 million in the United States exclusive of the costs of any goods transferred from Finland. Revenues in the United States are $37.5 million.
If the metal were purchased from one of the company's U.S. forging divisions, the costs would be $7.5 million. However, if it had been purchased from an independent Finnish supplier, the cost would be $10 million. The marginal income tax rate is 60 percent in Finland and 40 percent in the United States.
Required
a. What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($7.5 million and $10 million)
b. Is it ethical to choose the transfer price based on the impact on taxes
Explanation
This question doesn’t have an expert verified answer yet, let Quizplus AI Copilot help.
Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
