ACCA · Question 29 · Performance measurement and control
Section B - Case 3: Nordic Components
Nordic Components is a multinational manufacturer. Division A (located in Country X) manufactures electric motors. Division B (located in Country Y) manufactures e-bikes and uses one motor per bike.
Country X has a corporate tax rate of 15%. Country Y has a corporate tax rate of 30%. Head office wants to set a transfer price that minimizes the overall global tax liability for Nordic Components.
Assuming tax authorities allow it, which transfer pricing strategy should Head Office adopt?
Answer options:
Set the transfer price as low as possible to shift profits to Country X.
Set the transfer price as high as possible to shift profits to Country X.
Set the transfer price exactly equal to marginal cost to neutralize tax effects.
Set the transfer price equal to the external market price to ensure tax neutrality.
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