transfer pricing

Question 1

what is transfer pricing

Answer 1

a technique MNCs use to declare profits in lower taxed countries

Question 2

benefits of transfer pricing

Answer 2

• can reduce the amount of taxation paid by the organisation/increased profit (after tax)
  o meaning there is more profit available for retaining
  o leading to higher dividends for shareholders
• declaring profits in a country leads to taxation revenue
  o this can be used to improve state services
  o may improve the organisation’s relationship with the government

Question 3

costs of transfer pricing

Answer 3

• could attract negative media attention resulting in loss of sales
• may be subject to fines/sanctions if found to be tax evading
• masks actual regional performance