Why does transfer pricing become especially complex when the global market is involved?
A) because a global firm can use transfer pricing as a tax-avoidance device and governments dislike such activities
B) because issues of quality control can be serious, even when divisions of the same firm are involved
C) because shipping materials across national lines involves payment of duties and taxes, and these become part of the total price of the goods
D) because the temperature and humidity differences between origins and destinations often damage the products

Question

Quizplus · Accepted Answer

Transfer pricing involves the setting of prices for goods and services sold between different divisions or subsidiaries within the same company. In a global market, transfer pricing becomes complex because companies can use transfer pricing to shift profits to lower-tax jurisdictions, thereby reducing their overall tax burden. Governments may view this as a tax-avoidance device and seek to regulate or prohibit such activities, leading to further complexity.

Answer: C 
 Shipping materials across national lines often involves the payment of duties and taxes, which can become part of the total price of the goods. This can complicate transfer pricing, as companies may need to accurately account for these additional costs in their pricing decisions. Quality control issues and concerns about damage during shipping are also relevant factors, but they do not necessarily make transfer pricing specifically more complex in a global market.

Answer: B and D are incorrect choices as they are not directly related to the complexity of transfer pricing in a global market.

Why Does Transfer Pricing Become Especially Complex When the Global