XYZ is a multinational firm operating in the U.S. and Mexico. The tax on firm profits in Mexico is 76% and the U.S. taxes profits at 39%. Rather than declare all of the firm's profits in Mexico, XYZ's accountants suggest that they raise the price of the inputs and effectively lower the profits of the Mexican subsidiary. The accountants are promoting what practice?

Question

Quizplus · Accepted Answer

The accountants are promoting "transfer pricing," a practice where companies set prices for transactions between their own subsidiaries in different countries to allocate profits strategically and often to minimize tax liabilities.

XYZ Is a Multinational Firm Operating in the U