[r]

The Bytax Company and the Tytax Company are both members of the same multinational corporation (MNC). The Bytax Company has a home-country 50% tax rate and the Tytax Company has a home-country 20% income tax rate. The Bytax Company desires to purchase a component part from the Tytax Company. An acceptable range for the transfer price has been established to be between $300 and $600 per unit. The following statement is true regarding the optimal transfer price:

A.
The Bytax Company as well as the MNC will maximize earnings by setting the transfer price at $300 per unit.

B.
The Bytax Company as well as the MNC will maximize earning by setting the transfer price at $600 per unit.

C.
The Tytax Company as well as the MNC will maximize earnings by setting the transfer price at $300 per unit.

Correct D.
The Tytax Company as well as the MNC will maximize earning by setting the transfer price at $600 per unit.

The Bytax Company (purchasing subsidiary) will maximize earnings by having the transfer price set at the lowest possible price. The Tytax Company (selling subsidiary) will maximize earning by having the transfer price set at the highest possible price. The multinational corporation (MNC) will benefit by having the higher income shifted to the Company with the lowest home-country tax rate; therefore, the Tytax Company as well as the MNC will maximize earning by setting the transfer price at $600 per unit since the Tytax Company has the lower home-country tax rate of 20%.

R@twal

[jbergmann1]

What's your question? Makes sense that you'd want to pay the least tax.

TX CPA

Passed all 4 parts of the CPA exam!
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