Transfer pricing could be defined when a company trades goods/services and the allocation of profits and taxes with another sub-unit of the same company in a different country (Matt Barbella 2011). The four major aims of transfer pricing is to provide information for making good economic decisions, provide information for evaluating the divisional performance, promote congruence and sub-unit autonomy. There are three major types of transfer pricing method that firms use to transfer goods/services. These methods are market-based transfer prices, negotiate transfer prices and cost based transfer prices. Although there are four major aims of transfer pricing, there is no actual transfer pricing method which fulfils the four purposes. Therefore managers are forced to make a choice to which purpose is to be fulfilled or to which method is to satisfy the objective at hand. For example, if a manager is to choose a method such as marginal cost transfer pricing, it motivates the short run optimal economic decision of the manager but undermines the concept of autonomy.
Market-based transfer price is a situation whereby...
... middle of paper ...
...countries, especially developed countries like America, England and Australia etc. use this guideline as a basis to monitor internal transactions. This guideline also reflects the arm’s length price principle. Countries like America could be noted to have over 300 pages on this topic. But the enactment of these regulations as a basis to monitor abusive transfer pricing is lagging in undeveloped and developing countries. The damaging effects of the transfer policy could be limited if the international co-ordination amongst countries tax authorities are enhanced.
Secondly, transfer pricing audits should be carried out in order to follow and monitor the transfer methods used by the firm. By constantly getting the report of each transfer policy used, the tax authorities would be able to monitor and also reduce tax evasion through transfer pricing methods.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- To be successful in today’s global market, managers and leaders need to understand more than just technical skills. Managers and leaders should also understand globalization and organizational behavior. Globalization is the tendency of businesses, technologies, or philosophies to spread throughout the world, or the process of making this happen. The global economy is sometimes referred to as a globality, characterized as a totally interconnected marketplace, unhampered by time zones or national boundaries (Search CIO).... [tags: Globalization Essays]
1040 words (3 pages)
- Increasing Globalization in industry: The idea of new world wine producer and old world wine producer has come from the demand and supply. Earlier Western Europe was the chief consumer of wine. Nowadays ‘THE NEW WORLD PRODUCER’ has shown a big hike in production and consumption of wine. France, Italy, Portugal, Spain were considered as old wine producers. Argentina, U.S, Chile, South Africa, Australia and New Zealand are known as new world wine producers. Some characteristics of wine industry: • Transfer of important equipments, machinery and technical knowledge to the area of production.... [tags: production, market, preferences]
890 words (2.5 pages)
- GLOBALIZATION: A CAUSE OF TRANSFORMATION IN THE PATTERN OF GLOBAL POVERTY AND INEQUALITY. INTRODUCTION There is no topic in present international relations that attracts more noise than the concept of globalization. This is because of its deep controversial nature. Many scholars argue that advocates of globalization argue that it allows poor countries and their citizens to develop economically and raise their standards of living, while antagonists of it contend that the creation of an unregulated international free market has profited multinational corporations in the Western world at the expense of local enterprises, local cultures, and common people.... [tags: economic incorporation, productions]
1791 words (5.1 pages)
- The ethnic- Mexican experience has changed over the years as American has progressed through certain period of times, e.g., the modernity and transformation of the southwest in the late 19th and early 20th century, the labor demands and shifting of U.S. immigration policy in the 20th century, and the Chicano Civil Rights Movement. Through these events Mexican Americans have established and shaped their culture, in order, to negotiate these precarious social and historical circumstances. Throughout the ethnic Mexicans cultural history in the United States, conflict and contradiction has played a key role in shaping their modalities of life.... [tags: Mexican Culture and Identity]
2066 words (5.9 pages)
- Introduction: The conflict between the Ukraine and Russia is the Ukraine's most long-standing and deadly crisis; since its post-Soviet independence began as a protest against the government dropping plans to forge closer trade ties with the European Union. The conflict between Russia and the Ukraine stems from more than twenty years of weak governance, the government’s inability to promote a coherent executive branch policy, an economy dominated by oligarchs and rife with corruption, heavy reliance on Russia, and distinct differences between Ukraine's population from both Eastern and Western regions in terms of linguistics, religion and ethnicity (Lucas 2009).... [tags: globalization, social media, international law]
1600 words (4.6 pages)
- • Wal-Mart’s supply chain practices strive to offer the lowest cost price to their consumers. It is done by avoiding unnecessary middlemen and seeks to purchase products directly from the manufacturers. The firm is committed to find the best prices by leveraging on their buyer power to obtain favorable supple chain arrangements. • Wal-Mart strategic alliances with Procter and Gamble (P&G) through a vendor-managed inventory (VMI) also known as continuous replenishment, which began their partnership since the late 1980’s.... [tags: low cost pricing, business strategy]
1331 words (3.8 pages)
- Transfer Pricing: Performance Evaluation Issues The switch should be supplied to the northern division since it seems that there is excess capacity in the southern division. This is due to the decreased cost of the switch when dealing with the northern division. The external demand for the switch seems to be constrained and for this reason, the southern division should take the opportunity and maximize on the available opportunity (Abdallah, 2004, p. 109). The cost of production has been factored in the price of the switch and despite the deceased profit margin; the southern division will not incur any losses.... [tags: Division Critique]
509 words (1.5 pages)
- Transfer Pricing at Southern Alternatives 1. Cost Based Transfer Price Maintain the status quo within the company. All cost methods require that standard costs be used; therefore each division is encouraged to meet standard cost levels, instead of working around actual costs. This will increase goal congruence. Currently, the price Southern is charging is based on the market but they are running under capacity and had excess inventory. Therefore, Thompson is charging market price even though he is running under capacity.... [tags: Business and Management Studies]
1261 words (3.6 pages)
- Responsibility Accounting & Transfer Pricing - Shuman Automobiles, Inc Facts of the Case: 1. Clark Shuman, owner and general manager, plans to retire and relinquished his control over the company 2. Business has been doing good with an emphasis of selling new cars as the principal business of the dealership 3. He created three independent departments, namely new car sales, used car sales, and service department. 4. Salary is dependent on each department's gross profit 5. Upon the take over of the managerial positions, Janet Moyer of the new car sales had a first challenge of making a sale through a costumer who wanted to trade his old car with a new car.... [tags: Business Analysis]
1568 words (4.5 pages)
- "Flanking in a Price War" discusses some of the strategies utilized by retail grocery chains, wholesalers, and co-operatives within the Quebec Grocery Industry. Pricing strategies are the main focus of this article. It outlines both successful and non-successful pricing tactics. In addition, it emphasizes the importance of considering all pricing options, through price experiments, before deciding upon a pricing strategy. It tells of the decline of an industry leader, Steinberg Inc. Steinberg Inc.... [tags: Business Pricing Strategy]
1215 words (3.5 pages)