A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in a high-tax country. Why is this often not successful?

Question

Quizplus · Accepted Answer

Laws and regulations in the foreign country may prohibit such a transfer pricing scheme. Additionally, tax authorities may scrutinize transfer pricing and reject prices that are not considered arm's length, which means comparable to market prices. Furthermore, high transfer prices can increase costs and decrease profits in the subsidiary, which may attract negative attention and questioning from investors and stakeholders.

A Multinational Corporation May Attempt to Minimize the Taxes It