A US-Based Multinational Has Two Subsidiaries, One in Lithuania Where the the Tax

question 46

Multiple Choice

A U.S.-based multinational has two subsidiaries, one in Lithuania where the tax rate is 15%, and one in Ireland where the tax rate is 2%. The tax rate in the U.S. is 35%. If the Lithuanian-based subsidiary is transferring a good to the Irish subsidiary and the goal is to avoid taxes, it will

• A)sell it to the U.S. parent at a transfer price equal to marginal cost, which will then sell it to the Irish subsidiary at monopoly level pricing.
• B)set the transfer price to the Irish subsidiary at the monopoly level.
• C)set the transfer price to the Irish subsidiary at marginal cost.
• D)Unable to determine with the information given.

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Definitions:

User Costs

Expenses related to the use of a product or service, including maintenance, operation, and depreciation.

Property Rights

The legal rights to use, control, and dispose of property and resources.

Forest Cover

The proportion of land area covered by forests, which plays a critical role in carbon sequestration and biodiversity.

Deforestation

The clearing or thinning of forests by humans, often to make land available for agriculture, logging, or urban development.