3310solmod29

3310solmod29 - Finland U.S. Revenues ....

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Module 29 Answers 14-21. (25 min.) International Transfer Prices: Trans Atlantic Metals a. Analyze the tax liabilities in each jurisdiction using the alternative transfer prices. If the transfer price is $7.5 million, the tax liabilities are: Finland U.S. Revenues . ............................... $7,500,000 $37,500,000 Third-party costs. ..................... 5,000,000 15,000,000 Transferred goods costs. ......... 7,500,000 Total costs. .............................. 5,000,000 22,500,000 Taxable income. ...................... 2,500,000 15,000,000 Tax rate . .................................. 60% 40% Tax liability. .............................. $ 1,500,000 $ 6,000,000 Total tax liability. ...................... $7,500,000 If the transfer price is $10 million, the tax liabilities are computed as follows:
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Unformatted text preview: Finland U.S. Revenues . ................................ $10,000,000 $37,500,000 Third-party costs. ...................... 5,000,000 15,000,000 Transferred goods costs. .......... 10,000,000 Total costs. ............................... 5,000,000 25,000,000 Taxable income. ....................... 5,000,000 12,500,000 Tax rate . ................................... 60% 40% Tax liability. ............................... $3,000,000 $ 5,000,000 Total tax liability. ....................... $8,000,000 The total tax liability is higher if profits are shifted to the country with the higher tax rate. b. Answers will vary. In general, most people will view the choice as ethical. Obviously, misstating costs simply to avoid taxes is unethical (and illegal)....
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