Your company has 2 divisions, one in the US and one in Ireland. The division in the US is taxed at a rate of 40% and the division in Ireland is taxed at a rate of 10%. The division in Ireland produces a product with a full cost of $90/unit (translated into US dollars). This product has a market price of $120/unit (in US dollars). The product is then transferred to the US where an additional full cost of $60 is added to convert this to a final product. The final product can be sold for $240 in the US. You are trying to decide whether to use a transfer price equal to the market value or 150% of full cost. In terms of income taxe minimization, which transfer price would you prefer?
What is the allowable range of transfer prices?
The expert determines what is the allowable range of transfer prices.