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MNC use of transfer pricing strategies & Cost of Inventory

1. How might a MNC use transfer pricing strategies? How do import duties affect transfer pricing policies?

2. What costs are associated with inventory? Why is controlling turnover in the inventory important? How can improvements in inventory management affect profitability?

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1. How might a MNC use transfer pricing strategies? How do import duties affect transfer pricing policies?

Answer:
A MNC might use transfer pricing strategies for two basic purposes: (i) Income tax liability reduction (ii) Funds repositioning.

If the tax-rate in the country of the selling affiliate country is less than the tax-rate in the buying affiliate country, a high markup policy on sales will leave little taxable income in the buying affiliate country to be taxed at the higher rate. Even if the tax-rate in the buying affiliate country is not more than that in the selling affiliate country, a high markup policy will leave less funds to be removed from ...

Solution Summary

Solution clearly explains how MNC uses transfer pricing strategies and how import duties affect transfer pricing policies and also costs associated with inventories and why controlling turnover in inventory is important and also how improvements in inventory management affect profitability.

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