Question 1

A company may choose to keep one set of accounting records for tax reporting and a second set for internal management reporting.

Accepted Answer

This is true, as the accounting records for tax reporting must comply with specific tax regulations and may not provide the same level of detail or organization as the records used for internal management reporting. Keeping separate sets of records can help ensure accuracy and enable more effective decision-making within the company.

Question 2

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

Accepted Answer

Tariffs and customs duties can impact the cost of importing products, which in turn can impact the transfer pricing practices of multinationals. For example, if a company is importing a component at a higher cost due to tariffs, they may adjust the transfer pricing for that component to allocate the increased cost to the subsidiary purchasing it.

Question 3

Which of the following best describes an Advanced Pricing Agreement (APA)?
A)An agreement between a corporation and a foreign subsidiary as to what method,cost or market-based,will be used to set a transfer price for products.
B)A binding agreement between a foreign government's taxing authority,the IRS and a U.S.based corporation to help avoid disputes related to transfer pricing.
C)An agreement under IRS code Section 482 that requires a company to utilize market based transfer prices and to document them for tax return purposes.
D)A binding agreement between the IRS and a corporation to help avoid disputes related to transfer pricing.

Accepted Answer

The answer of Which of the following best describes an...

Question 4

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction.Suggest a strategy,including transfer prices,which will result in the lowest tax for the overall corporation.

Accepted Answer

The answer of A company has a plant in a...

Question 5

What does Section 482 of the U.S.Internal Revenue Code govern?

Accepted Answer

The answer of What does Section 482 of the U.S.Internal...

Question 6

Which of the following taxes does transfer pricing affect?
A)customs duties
B)taxes on dividends received
C)corporate income taxes
D)foreign property taxes

Accepted Answer

The answer of Which of the following taxes does transfer...

Question 7

What is the role of unused capacity within the selling division in the determination of a negotiated transfer price to another division?

Accepted Answer

The answer of What is the role of unused capacity...

Question 8

Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?
A)transfer price redressal panel
B)grievance redressal forum
C)transfer price agreements
D)advanced pricing agreements

Accepted Answer

Advanced pricing agreements (APAs) are agreements entered into between taxpayers and tax authorities to determine the appropriate transfer pricing methodology and establish transfer prices in advance, thereby reducing the risk of costly transfer pricing disputes. APAs provide certainty to taxpayers and tax authorities by establishing clear guidelines for transfer pricing and reducing the likelihood of double taxation.

Question 9

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

Accepted Answer

Lowering transfer prices of products can result in lower tariffs and customs duties, which can save the company money and increase their profitability.

Question 10

Global Giant,a multinational corporation,has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country.If Global Giant wants to minimize its worldwide tax liability,we would expect Global Giant to ________.
A)stop producing in the low tax rate country
B)stop marketing in the high tax rate country
C)establish a low transfer price when the producing unit sells to the marketing unit
D)establish a high transfer price when the producing unit sells to the marketing unit

Accepted Answer

By establishing a high transfer price when the producing unit sells to the marketing unit, the producing subsidiary in the low tax rate country can shift its profits to the marketing subsidiary in the high tax country, reducing Global Giant's overall tax liability. This is known as transfer pricing, a common strategy for multinational corporations to minimize their tax burden. Stopping production in the low tax rate country or stopping marketing in the high tax rate country would not necessarily be the most effective strategy for minimizing tax liability. Establishing a low transfer price would not be beneficial to Global Giant, as it would reduce the profits of the producing subsidiary and potentially increase the tax liability in the low tax rate country.

Quiz 22: Management Control Systems, transfer Pricing, and Multinational Considerations

A company may choose to keep one set of accounting records for tax reporting and a second set for internal management reporting.

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

Which of the following best describes an Advanced Pricing Agreement (APA) ?

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction.Suggest a strategy,including transfer prices,which will result in the lowest tax for the overall corporation.

What does Section 482 of the U.S.Internal Revenue Code govern?

Which of the following taxes does transfer pricing affect?

What is the role of unused capacity within the selling division in the determination of a negotiated transfer price to another division?

Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

Global Giant,a multinational corporation,has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country.If Global Giant wants to minimize its worldwide tax liability,we would expect Global Giant to ________.