Question Two (6 Marks)

1. Briefly explain four reasons why transfer pricing is important for multinational

corporations.

(2 marks)

2. Identify one of the main advantages and two behavioural implications of the use of the

following transfer pricing methods:

a. Full Cost Based Transfer Price

b. Negotiation Based Transfer Price

Note:There should be two advantages and four behavioural implications in total - i.e.

each transfer pricing method will have one advantage and two behavioural implications.