Assume that a multinational company produces components in country A and ships them to a subsidiary in country B.In order to increase its profits
A)the company should charge a high transfer price for the components if income taxes in country B are higher than in country A.
B)the company should charge a low transfer price for the components if income taxes in country B are higher than in country A.
C)the company should charge a high transfer price for the components if income taxes in country A are higher than in country B.
D)None of the above

Question

Quizplus · Accepted Answer

The company should charge a high transfer price for the components if income taxes in country B are higher than in country A. This will reduce the taxable income in country B and increase the taxable income in country A, resulting in lower overall taxes.

Assume That a Multinational Company Produces Components in Country a and Ships