ABC Division is in the United States with high income tax rates.ABC Division produces a component for the Spain Division in a low income-tax-rate country.What transfer price should ABC Division set for the component sold to the Spain Division to minimize taxes?

Question

Quizplus · Accepted Answer

ABC Division should set a low transfer price to minimize taxes. This is because if ABC Division sets a high transfer price, it will generate higher profits in a high-income-tax-rate country, resulting in higher taxes. On the other hand, if the transfer price is set low, the profit generated will be lower, resulting in lower taxes. Therefore, to minimize taxes, ABC Division must set a low transfer price.

ABC Division Is in the United States with High Income