Question
Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges raw metal, cuts it, and then ships it to the United States
Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges raw metal, cuts it, and then ships it to the United States where the companys Gear Division uses the metal to produce finished gears. Operating expenses amount to $20 million in Finland and $60 million in the United States exclusive of the costs of any goods transferred from Finland. Revenues in the United States are $150 million.
If the metal were purchased from one of the companys U.S. forging divisions, the costs would be $30 million. However, if it had been purchased from an independent Finnish supplier, the cost would be $40 million. The marginal income tax rate is 60 percent in Finland and 40 percent in the United States.
Required:
What is the companys total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($30 million and $40 million)? (Enter your answers in dollars and not in millions of dollars.)
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