Qn four and Qn five

QUESTION FOUR Regulation 16 of the Tax Administration (Transfer Pricing) Regulations, 2018 empowers the Commissioner to issue Transfer Pricing Guidelines. The objective of these Guidelines is to provide guidance about the procedures to be followed in the determination of arm's length prices and provide consistency in administration of tax laws. Consistent with the regulation mentioned above, in July, 2020 the Commissioner issued the guidelines that insisted on the use of Arm's length principle that provide for five (5) transfer pricing methods as applicable in determining the arm's length price of controlled transactions. Required a) Discuss what is arm's length prices b) Describe the five (5) pricing methods used to ascertain the application of arm's length principle QUESTION FIVE ABC Plc is a multinational company based in Tanzania; it has one subsidiary (distributor) AB Plc located in Uganda. ABC Plc deals farming and processing of cashew nuts which then are transfer to AB Plc (the distributor) at a price equivalent to TZS 2,400 per kg of cashew nut, where by AB Plc resale the product at TZS 3,000 to external market. ABC Pic also commonly Sale its cashew nuts to AC PIc. AC PIc operations are similar as those of AB Plc that is distribution of cashew nuts across the world at the price equivalent to TZS 3,000 per kg. The cashew nut market has established that the profit margin is 30%, which is the same margin realized by AC Plc. The Commissioner, Tanzania Revenue Authority has assigned you to determine the transfer price that should comply with the arm's length principle. The Commissioner has given you the term of reference that you should use CUP and Resale Price Method. Required a) Determine the transfer price if CUP method is used Page 3 of 3 b) Determine the transfer price if RP Method is used c) Discuss the possible reasons for ABC Plc to sale cashew nut to an independent distributor at different price from that charged to the subsidiary