Chapter 4 : Transfer Pricing Flashcards
1
Q
Transfer Pricing
A
Refers to the determination of the price at which transactions between related parties will be carried out
2
Q
3 types of transfer price methods
A
- Market based transfer price
- Cost-based transfer price
- Negotiated price
3
Q
2 objectives of the corporate management by transfer pricing
A
- Cost minimization
- Performance evaluation
4
Q
5 cost-minimizing objectives
A
- Avoidance of withholding taxes
- Minimization of import duties
- Protect cash flows from currency deflations
- Improve competitive position of foreign operations
5
Q
What is the advantage of a negotiated price
A
Fair performance evaluation
6
Q
arms-length price
A
Price that would be agreed upon by unrelated parties
7
Q
When is a market-based method preferred?
A
- Interest of local partners
- Good relationship with local government
8
Q
Dual-pricing
A
2 different transfer prices are used seperately for both objectives:
- Discretionary transfer price is used for cost-minimization
- Negotiated transfer price is used for performance evaluation
9
Q
5 Transfer pricing methods used for performance evaluation
A
- Comparable uncontrolled price method
- Resale price method
- Cost-plus method
- Comparable profits method
- Profit split method
