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Exam 9: International Transfer Pricing

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Question 21

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In a recent survey, what issue did 30% of respondents identify as the most important international tax issue they face?

A) Foreign currency translation of taxable income
B) Double taxation
C) Transfer pricing
D) Withholding taxes

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Question 22

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Subsidiary X, located in a country with a 25% corporate income tax rate, and Subsidiary Y, located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko, the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. What is advantage of this decision?

A) Net income for Subsidiary X will increase by $30 per unit.
B) Net income for the corporation as a whole will increase by $30 per unit.
C) Net income for the corporation as a whole will increase by $3 per unit.
D) Net income for Subsidiary Y will decrease by $30 per unit.

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Question 23

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What is a prime reason that the IRS has found it difficult to obtain information needed to examine the transfer pricing scheme of foreign parents with U.S. subsidiaries?

What is the primary characteristic of a decentralized organization?

Subsidiary X, located in a country with a 25% corporate income tax rate, and Subsidiary Y, located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko, the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. How will subsidiary managers in the decentralized organization view this decision by parent company management?

Historically, which industry is found most at risk for a transfer pricing adjustment?

According to Internal Revenue Service (IRS) code Section 482, what is the standard used by the IRS for international transfer pricing?

IRS code Section 482 describes appropriate transfer prices as "the prices which would have been agreed upon between unrelated parties engaged in the same or similar transactions under the same or similar conditions in the open market." How does it refer to such prices?

What is the primary difficulty of using market-based transfer prices for intercompany transactions?

A cost-plus transfer pricing scheme is allowed by the Internal Revenue Service when:

The comparable uncontrolled transaction (CUT) method is one alternative for determining an arm's-length transfer price for what kind of intercompany transaction?

What is the term used for intercompany transactions from a parent to a subsidiary?

What is the time frame in which taxpayers must produce documentation to the IRS, in which it justifies the transfer pricing method that it has selected as being the most reliable measure of arm's-length price?

Which of the following statements is true about applying the arm's-length standard for transfer pricing?

How is goal congruence achieved in decentralized organizations?

Which of the following is a reason for a parent to use discretionary transfer prices?

Which is NOT a common risk associated with local authorities' scrutiny of a company's transfer prices?

In addition to regulating the transfer prices on tangible property, the Internal Revenue Service also provides guidance on:

What is the term used for intercompany transactions from a subsidiary to a parent?

What is the general rule for international transfer pricing advocated by the Organization for Economic Cooperation and Development (OECD) ?