Question
Q4. Global Enterprises has a manufacturing affiliate in Country A that incurs costs of $600,000 for goods that it sells to its sales affiliate in
Q4. Global Enterprises has a manufacturing affiliate in Country A that incurs costs of $600,000 for goods that it sells to its sales affiliate in Country B. The sales affiliate resells these goods to final consumers for $2,500,000. Both affiliates incur operating expenses of $150,000 each. Countries A and B levy a corporate income tax of 30 percent on taxable income in their jurisdictions Global Enterprise normal operating expenses is $150,000, the manufacturing cost per unit, based on operations at full capacity of 10,000 units, is $60, and that the uncontrolled selling price of the unit in Country A is $120. Costs to transport the goods to the distribution affiliate in Country B are $20 per unit, and a reasonable profit margin on such cross-border sales is 30 percent of cost. Now suppose that Country B levies a corporate income tax of 40 percent on taxable income (vs. 30 percent in Country A) and a tariff of 20 percent on the declared value of the imported goods. The minimum declared value legally allowed in Country B is $100 per unit with no upper limit. Import duties are deductible for income tax purposes in Country B. Required: Based on the foregoing information, compute the negotiate transfer price charged by Country A.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started