Transfer Pricing Becomes Especially Complex When the Global Market Is

question 154

Multiple Choice

Transfer pricing becomes especially complex when the global market is involved because:

• A)shipping materials across national lines involves payment of duties and taxes, and these become part of the total price of the goods.
• B)issues of quality control can be serious, even when divisions of the same firm are involved.
• C)a firm with activities in several countries can use transfer pricing as a tax-avoidance device and governments frown upon such activities.
• D)the temperature and humidity differences between origins and destinations often damage the products.

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Definitions:

International Trade

The exchange of goods and services between countries, driven by comparative advantages and resulting in increased global economic interaction.

Autarky Price

The price of a good within a closed economy that does not engage in trade with external entities.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay.

Autarky Price

The price of a good in a country without international trade, determined solely by domestic supply and demand.