Because tax rates vary among countries, companies have incentives to set transfer prices that will increase revenues (and profits) in low-tax countries and increase costs (thereby reducing profits) in high-tax countries.

Question

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Companies use transfer pricing strategies to allocate profits within different parts of the same company located in various countries, aiming to increase profits in low-tax jurisdictions and decrease taxable income in high-tax ones, thereby reducing their overall tax burden.

Because Tax Rates Vary Among Countries, Companies Have Incentives to Set