To reduce transfer pricing distortion,multinational firms are supposed to charge prices to their foreign subsidiaries that are __________.
A) Average variable costs
B) Total costs
C) Marginal costs
D) Arm's-length prices

Question

Quizplus · Accepted Answer

To reduce transfer pricing distortions, multinational firms are required to use arm's-length prices, which are prices that would be charged between two unrelated parties in a similar transaction. This ensures that prices charged between related parties reflect market prices, rather than being manipulated for tax or other purposes. Charging average, total, or marginal costs would not necessarily reflect market prices, and could still result in transfer pricing distortions.

To Reduce Transfer Pricing Distortion,multinational Firms Are Supposed to Charge