Downloaded 440 times
Uploaded byGaurav Parmar
3901799 transfer-pricing
Transfer pricing refers to the prices charged for goods and services transferred between subunits of the same organization. There are several methods for determining transfer prices, including market-based prices, cost-based prices, and negotiated prices. Multinational companies use transfer pricing to minimize taxes, duties, and tariffs paid across different jurisdictions. When goods are transferred between subunits in different countries with varying tax rates, the transfer price should be chosen to maximize the overall tax savings for the organization.
In this document
Powered by AI
Overview of transfer pricing, its purpose, and criteria used in multinational corporations.
Classification of transfer pricing methods: Market-based, Cost-based, and Negotiated pricing, with their advantages and drawbacks.
The potential for dysfunctional behavior resulting from various transfer pricing policies.
Example illustrating the financial implications of transfer pricing decisions between divisions.
Key considerations and drivers behind transfer pricing practices in multinational contexts.
More Related Content
Similar to 3901799 transfer-pricing
3901799 transfer-pricing
- 1.
- 2. Transfer Prices TransferPrice is the price one subunit charges for a product or service supplied to another subunit Of the same Organization
- 3. Transfer Pricing- 4 criteria's 1Goal Congruence 2 Management Effort 3 Subunit Performance Evaluation 4 Subunit Autonomy
- 4. Purpose of TransferPricing Multinational companies use transfer pricing to minimize their worldwide taxes, duties, and tariffs .
- 5. Transfer Costing- Methods 1Market Based 2Cost Based 3Negotiated
- 6. Market-Based Transfer PricesTransferring at Market Price is best if 1 Perfectly Competitive Market 2 Interdependence of Subunit is Minimal 3 No additional Cost-benefits to company
- 7. Market-Based Transfer PricesThe major drawback to market-based prices is that market prices are not always available for items transferred internally.
- 8. Transfers at CostAbout half of the major companies in the world transfer items at cost.
- 9. Transfers at CostVariable costs Full cost Dual Pricing
- 10. Variable-Cost Pricing Whenmarket prices cannot be used, versions of “cost-plus-a-profit” are often used as a fair substitute.
- 11. Variable-Cost Pricing Insituations where idle capacity exists, variable cost would generally be the better basis for transfer pricing and would lead to the optimum decision for the firm as a whole.
- 12. Negotiated Transfer PricesCompanies heavily committed to segment autonomy often allow managers to negotiate transfer prices.
- 13. Dysfunctional Behavior Virtuallyany type of transfer pricing policy can lead to dysfunctional behavior – actions taken in conflict with organizational goals .
- 14. Factors affecting Transferprices.
- 15. Multinational Transfer PricingExample An item is produced by Division A in a country with a 25% income tax rate. It is transferred to Division B in a country with a 50% income tax rate. An import duty equal to 20% of the price of the item is assessed. Full unit cost is Rs100, and variable cost is Rs60 (either transfer price could be chosen).
- 16. Multinational Transfer PricingExample Which transfer price should be chosen? Rs100 Why?
- 17. Multinational Transfer PricingExample Income of A is Rs40 higher: 25% × 40 = (Rs10) higher taxes Income of B is Rs40 lower: 50% × 40 = Rs20 lower taxes Import duty paid by B: 20% × 40 = (Rs8) Net savings = Rs2
- 18.
- 19. a) Tax regimesb) Local Market conditions c) Market Imperfections d) Joint-venture partner Criteria’s for Transfer Pricing
- 20. Key drivers behindtransfer pricing in Foreign Countries: Market Conditions Competition Profit for the affiliate Tax Rates
- 21. Key drivers behindtransfer pricing in Foreign Countries: Economic conditions Import Restrictions Customs Duties Price Controls Exchange Controls
- 22. Setting Transfer Pricesa) Arm’s length prices: use of market mechanism as a cue for setting transfer prices. b) Cost-based pricing (adds a mark-up)