Which is true of a firm's transfer pricing policy?
A)Produces optimal results when set at the head office
B)Always promotes goal congruence
C)Leads to accurate measures of local performance
D)Is often designed to minimize tax expense
E)All of the choices are correct

Question

Quizplus · Accepted Answer

A firm's transfer pricing policy is often designed to minimize tax expense. It involves setting prices for goods or services that are transferred between different units or departments within the same company. By setting prices at a lower level in a country with higher tax rates, companies can reduce their overall tax expense. This often creates tension between subsidiaries and the head office, and can lead to controversy with tax authorities.

Which Is True of a Firm's Transfer Pricing Policy