Suppose a U.S.-based MNC makes bicycles with parts from its subsidiary in a low-tax East Asian country.The bicycle frames are made here,the component parts (cranksets,wheels,and so on)are made abroad,and the bicycles are assembled in Japan and reimported to the U.S.It can reduce its reported U.S.income-and increase its subsidiary's profits-by

Question

Quizplus · Accepted Answer

By undercharging its subsidiaries for the U.S.-made frames, the MNC can shift profits to the subsidiary in the low-tax country, thereby reducing its taxable income in the U.S. and increasing the subsidiary's profits.