Which of the following statements regarding multinational transfer pricing isnotcorrect?

1. Because tax rates vary among countries, companies have incentives to set transfer prices that will increase revenues (and profits) in low-tax countries and increase costs (thereby reducing profits) in high-tax countries. 2. International taxing authorities look closely at transfer prices when examining the returns of companies engaged in related-party transactions that cross national boundaries.

3.All of these are correct statements.

4. In international (or interstate) transactions, transfer prices can affect tax liabilities, royalties, and other payments because of different laws in different countries.

5.Foreign companies that sell goods to their U.S. subsidiaries at inflated transfer prices artificially increase the profit of the U.S. subsidiaries.