Multinational transfer pricing, effect of alternative transferpricing methods, global tax minimisation. (35 minutes) Connemara Computers Ltd, with headquarters in Cashel, Ireland, manufactures and sells desktop computers. Connemara Computers has three divisions, each of which is located in a different country:

a. French Division—manufactures memory devices and keyboards.

b. Belgian Division—assembles desktop computers, using internally manufactured parts and memory devices and keyboards from the French Division.

c. Irish Division—packages and distributes desktop computers.

Each division is run as a profit centre. The costs for the work done in each division that is associated with a single desktop computer unit are as follows:

REQUIRED 1. Calculate the after-tax operating profit per unit earned by each division under each of the following transfer-pricing methods:

(a) market price,

(b) 200% of full costs, and

(c) 300% of variable costs. (Taxes are not included in the calculation of the cost-based transfer prices.)
Which transfer-pricing method(s) will maximise the net profit per unit of Connemara Computers? hytr45

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French Division: Belgian Division: Variable costs Fixed costs EUR 100 = - EUR 180 Irish Division: Variable costs Fixed costs - EUR 240 =EUR 320 Variable costs EUR 100 Fixed costs = EUR 200 40% 20% 30% French corporation tax rate on French Division's operating profit Belgian corporation tax rate on Belgian Division's operating profit Irish corporation tax rate on Irish Division's operating profit Each desktop computer is sold to retail outlets in Ireland for EUR 3,200. Both the French and the Belgian divisions sell part of their production under a private label. The French division sells the comparable memory/keyboard package used in each Connemara Computers desktop computer to a French manufacturer for EUR 360. The Belgian division sells the comparable desktop computer to a Belgian distributor for EUR 1,040.