Soleil Inc.has an affiliate in Brazil and one in South Africa.The entire production of the South Africa affiliate is sold to the affiliate in Brazil which sells the final product to customers.The Brazilian affiliate has sales of 1000 and overhead costs of 100.The cost of goods sold in South Africa is 500 and overhead amounts to 300.The income tax rates are 40 percent in Brazil and 20 percent in South Africa.Assume that neither South Africa nor Brazil put any restrictions on the transfer price.What is the optimal transfer price?
What are the total taxes paid?

Question

Soleil Inc.has an affiliate in Brazil and one in South Africa.The entire production of the South Africa affiliate is sold to the affiliate in Brazil which sells the final product to customers.The Brazilian affiliate has sales of 1000 and overhead costs of 100.The cost of goods sold in South Africa is 500 and overhead amounts to 300.The income tax rates are 40 percent in Brazil and 20 percent in South Africa.Assume that neither South Africa nor Brazil put any restrictions on the transfer price.What is the optimal transfer price?
 What are the total taxes paid?

Quizplus · Accepted Answer

The Answer of Soleil Inc.has an affiliate in Brazil and one in South Africa.The entire production of the South Africa affiliate is sold to the affiliate in Brazil which sells the final product to customers.The Brazilian affiliate has sales of 1000 and overhead costs of 100.The cost of goods sold in South Africa is 500 and overhead amounts to 300.The income tax rates are 40 percent in Brazil and 20 percent in South Africa.Assume that neither South Africa nor Brazil put any restrictions on the transfer price.What is the optimal transfer price?
 What are the total taxes paid?