International transfer pricing with tax differentials and tariffs Tulip Technologies is a large Dutch manufacturing firm that has profit centre sub units located around the globe. Tulip Technologies is determined to harmonise and centralise its global financial services into several regional shared service centres (ssc). These SSCs are designed to provide financial services to all of Tulip’s business units. The SSCs do not and will not sell financial services to independent companies. Implementation of the centralised, harmonised financial services has been complicated by the customs regulations of countries, such as Brazil, that are outside of Netherlands’ trading blocks. Brazil charges multinational companies a 43% tariff on the monetary value of imported services. The intent of the Brazilian government is to create incentives for the development of local capabilities, by either multinationals or local entrepreneurs who would start independent service providers in Brazil. Consider the following data in completing the requirements.

Required:
Prepare a report to advise Tulip Technologies on its sourcing strategy in Brazil.
1. Consider both quantitative and qualitative issues in making your recommendation for this sourcing decision.
2. Discuss the advantages and disadvantages from using dual transfer prices in this situation.

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Transfer pricing with tax differences and tariffs Comparable net margin (benchmark) Variable cost of services provided 35% 60.00 Full cost of services provided 120.00 Cost of providing services in-country 300.00 Cost of independent in-country services 280.00 Arms-length transfer price unknown Brazil business unit operating sales revenue 10000.00 Brazil business unit operating costs 40% Netherlands corporate tax rate Brazil corporate tax rate Brazil tariff on imported services 20% 34% 43%