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Assignment 4: Transfer Pricing
Finance & Accounting
Pages 6 (1506 words)
Transfer Pricing Author Insttitution Transfer Pricing Introduction Transfer pricing represents an intricate yet interesting challenge to MNCs, who ought to establish suitable prices at which goods, services, intellectual property, and financial instruments are transferred among the affiliated entities.
The U.S. has an aggressive transfer pricing policy environment as administrators and legislators pursue to lure foreign investment. Transfer prices entail changes made between controlled (or related) entities such as branches and companies that can be either wholly or majority owned by a parent company. The paper explores diverse scenarios of transfer pricing that an entity can pursue to minimize the tax burden. Discussion Based on their earnings and transactions, it may be rewarding for U.S. corporations operating offshore to launch separate foreign entities to conduct business abroad. In the event that a U.S. corporation operates abroad as a foreign corporation and reinvests its foreign earnings offshore, then the U.S. income tax can be deferred until the income may be repatriated in the form of dividend. Similarly, a U.S. corporation (with the exclusion of a Subchapter S corporation) can claim a credit for foreign income taxes paid, which can avert the situation of income getting taxed twice (by both the U.S and the foreign jurisdiction). Another approach in which companies can alleviate the tax burden centers on seeking ways to generate wealth within countries with lower tax rates (Collins, Chamberlin, & Hirsch, 2012). For instance, a multination labeled as USAco, based in the U.S., manufactures and sells cars within the U.S. ...
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