If the IRS didn't keep a good watch on transfer pricing, international transfer pricing could lead to loss of corporate profits taxes in the US are much higher than the Cayman Islands. If a firm owns a Cayman Island distributorship, it can buy US products and resell them from the Cayman Islands. To minimize firm-wide corporate taxation (and if it were not required to use arm's length pricing), then:
A) Use a high transfer price to sell products to the Cayman Island to minimize US taxes.
B) Use a low transfer price to sell products to the Cayman Island to minimize US taxes.
C) It will not matter what transfer price it uses to minimize US taxes.

Question

Quizplus · Accepted Answer

Using a low transfer price to sell products to the Cayman Islands would minimize US taxes because it shifts more profit to the Cayman Islands, where the tax rate is lower.

If the IRS Didn't Keep a Good Watch on Transfer