In situations where ICs are setting transfer prices:
A) host governments are generally unaware of the actions by ICs operating within their borders.
B) management must demonstrate they are not making profits on the sales.
C) the IC should show that other companies are charging comparable prices for the same or similar products.
D) the home country is usually more concerned than the host country, especially if the home country's tax rates are lower.

Question

Quizplus · Accepted Answer

The host and home governments should be expected to be aware of and interested in transfer pricing and profit allocation by ICs operating within their borders. The companies must expect questioning by both governments and be prepared to demonstrate that prices or allocations are reasonable. Management needs to show that other companies charge comparable prices for the same or similar items or, if there are no similar items, show that costs plus profit have been used reasonably to arrive at the price.

In Situations Where ICs Are Setting Transfer Prices