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transfer prices
Zineb-2710 - 05/15/2019, 6:58 pm

One question of Corporate Governance Financial Markets and Risk Management section is confusing to me:
The explanation makes sense: it says to minimize tax burden by minimizing net income (higher purchase costs) in jurisdictions with higher income tax and maximizing net income (lower purchase costs) in jurisdictions with lower income tax rates.
However, the supposed correct answer “it is advantageous to maximize sales price to sub with lower income tax rate”, I think is wrong and says the opposite of the explanation – doesn’t this statement mean higher net profit for the parent (since they want to maximize the sales prices) and lower net income for the sub (the sub will buy for higher purchase costs)?

Thanks to all for your input

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