Of the signals that may cause a taxing authority to audit a company's transfer price, which one is the most important?

Question

Quizplus · Accepted Answer

Unexpectedly low profit is the most important signal that may cause a taxing authority to audit a company's transfer price because it could indicate that the company has set an artificially low transfer price to reduce tax liabilities. This is a common transfer pricing strategy known as "profit shifting." In contrast, profits higher than expected for a specific industry may be due to other factors such as a competitive advantage or superior performance, while the nature of the business and parent company location are less indicative of transfer pricing manipulation.

Of the Signals That May Cause a Taxing Authority to Audit