Which of the following is true about the transfer pricing methods of determining an arm's-length price?
A) The arm's-length standard is only applicable for commodities businesses.
B) The resale method is most applicable for transfers of components or unfinished goods to overseas subsidiaries.
C) The cost-plus approach usually applies best to transfers to sales subsidiaries for ultimate distribution.
D) The starting point for testing the appropriateness of transfer prices is a comparison with comparable uncontrolled transactions involving unrelated parties.

Question

Quizplus · Accepted Answer

The starting point for testing the appropriateness of transfer prices is a comparison with comparable uncontrolled transactions involving unrelated parties. This is because it provides a benchmark for a fair arm's-length price. Option A is incorrect as the arm's-length standard is applicable to any type of business. Option B is incorrect as the resale method is used for finished goods, not components or unfinished goods. Option C is incorrect as the cost-plus approach often applies to manufacturing and not to sales subsidiaries.

Which of the Following Is True About the Transfer Pricing