ABCO Corporation Has Its Two Wholly Owned Subsidiaries, Delta and Parry

question 38

Multiple Choice

ABCO Corporation has its two wholly owned subsidiaries, Delta and Parry, in Country A and Country B, respectively. Parry purchases a part for its production from Delta. Country B has a higher tax rate than Country A. To minimize the corporation's overall income tax, how should ABCO set its transfer prices between its subsidiaries?

• A) Delta should sell parts to Parry at low prices.
• B) Delta should sell parts to Parry at high prices.
• C) It doesn't matter what transfer price is used because the subsidiaries are part of the same company.
• D) Transfer pricing does not affect the total tax paid by the corporation.

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