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.
E)be indifferent as to its transfer pricing policy.

Question

Quizplus · Accepted Answer

Global Giant would want to establish a high transfer price when the producing unit sells to the marketing unit in order to shift more profits to the low tax rate country and minimize its tax liability in the high tax rate country. This is a common transfer pricing strategy used by multinational corporations to take advantage of different tax rates in different countries.

Global Giant, a Multinational Corporation, Has a Producing Subsidiary in a Low