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    What is the allowable range of transfer prices?

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    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?
    Provide calculations?
    What is the allowable range of transfer prices?

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    Solution Summary

    The expert determines what is the allowable range of transfer prices.

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