Transfer Pricing Flashcards
Ch4
It happens when two or more related companies transact with each other.
Transfer Pricing
Example of transfer pricing
Parent and subsidiary companies, divisions or affiliates selling or buying from each other.
is the price at which related parties transact with each other
Transfer Price
May be used in transactions between a company and its subsidiaries, or between divisions of the same company in the same or in different countries.
Transfer Price
5 Types of Transfer Price
Market Price, Cost-based transfer price, Negotiated transfer price, Arbitrary transfer pricing, Dual pricing,
The current price at which a product or service can be bought or sold.
Market Price
Cost plus mark-up
Cost based transfer price
The best bargain price acceptable to the buying and selling units.
Negotiated transfer price
Set by management at the corporate headquarters.
Arbitrary transfer pricing
A method where the transfer price is set at different levels for the supplying and receiving divisions of an organization.
Dual pricing
Should be no less than the sum of the selling segment’s incremental costs (or marginal costs)associated with the goods or services plus the opportunity cost of the facilities used.
Minimum Transfer Price
Should be no greater than the lowest market price at which the buying segment can acquire the goods or services externally
Maximum Transfer Price
applied when the transacting divisions are addressed or located in different countries of operations
Multinational Transfer Pricing
Special focus is the analysis on international tax effects incurred or paid by the parent or holding company to the host countries
Multinational Transfer Pricing
The transfer price affects the profit that a division makes.
Quality Management Measurements
