Question
Assume the U.S. corporate income tax rate is 40 percent and the Mexican corporate income tax rate is 30 percent. Jacques International Apparel Company has
Assume the U.S. corporate income tax rate is 40 percent and the Mexican corporate income tax rate is 30 percent. Jacques International Apparel Company has subsidiaries in both the United States and Mexico. Jacques is trying to decide what transfer price to use for its famous French frock, which is being transferred from the U.S. subsidiary to the Mexican subsidiary. It could ship the frock at the market price of $75 or at cost plus 20%. The cost of the frock is $40. Which transfer price would minimize Jacques's tax burden?
a- $75 b- $48 c- $90 d $ 75- $40 = $35
I know that the aswer is (b), but I need the explanatiion of why. Thanks!
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