Company MHF operates subsidiaries in two countries.One of the subsidiaries consumes the output of the other in the production of a good for sale to the public.The company could increase cash flows by:
A)Using a transfer price based on full cost.
B)Using a transfer price to transfer as much income as possible to the subsidiary located in the lower tax country.
C)Using a transfer price based on market value.
D)Using a transfer price to transfer as much income as possible to the subsidiary located in the higher tax country.

Question

Quizplus · Accepted Answer

Transfer pricing strategies that shift income to lower tax jurisdictions can help multinational companies reduce their overall tax burden, thereby increasing cash flows. By setting a transfer price that moves as much income as possible to the subsidiary in the lower tax country, the company can lower its total tax expense.

Company MHF Operates Subsidiaries in Two Countries