W5A3
W5A3
Scenario: Subsidiary X sells 10,000 units to Subsidiary Y annually. The marginal income tax rate for Subsidiary X is 30% and the marginal income tax rate for Subsidiary Y is 45%. The transfer price per unit is currently $5,000, but it is likely to adjust at any level between $5,000 and $5,500.
Your Task: Derive a formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price. Then, calculate, to adjust, the optimal transfer price.
You can refer to Chapter 21: International Tax Environment and Transfer Pricing to solve this problem.
Submit your response to the
Grading Criteria Maximum Points
Accurately derived the formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price. 25
Accurately calculated the optimal transfer price. 25
Presented a structured document free of spelling and grammatical errors. 5
Properly cited sources using APA format. 5