Consider the following statements about transfer pricing:
I. Income taxes and import duties are an important consideration when setting a transfer price for companies that pursue international commerce.
II. Transfer prices cannot be used by organizations in the service industry.
III. Transfer prices are totally cost-based in nature, not market-based.
Which of the above statements is (are) true?
A) I only.
B) II only.
C) I and II.
D) II and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

I is true because transfer pricing significantly affects the allocation of income among different tax jurisdictions, which in turn impacts income taxes and import duties. II is false because organizations in the service industry also use transfer pricing for internal transactions. III is false because transfer pricing can be based on market conditions, cost, or a combination of both, depending on the company's strategy and compliance requirements.

Consider the Following Statements About Transfer Pricing