A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most likely reason for these effects is that the:
A. Price is an arm’s-length price.
B. Price is a cost-plus price.
C. Transfer price is too low.
D. Transfer price is too high.
Answer:D
A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most likely reason for these effects is that the:
A. Price is an arm’s-length price. B. Price is a cost-plus price. C. Transfer price is too low. D. Transfer price is too high.