33 - 22-32(Contd.)b.Transfers from Anita to the Swiss...

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Unformatted text preview: 22-32(Contd.)b.Transfers from Anita to the Swiss subsidiary should "allocate" as little of the operating income to Anita as possible, since the tax rate in the United States is higher than in Switzerland for this transaction. Therefore, these transfers should be priced at the lowest allowable transfer price of $500,000 to minimize overall company taxes.Taxes paid:Anita, 0.40 ($500,000 $500,000)$ Swiss subsidiary, 0.15 ($950,000 $500,000 $250,000)30,000Total taxes paid by Anita Corporation and itssubsidiaries on transfers to Switzerland$30,000After-tax operating incomeAnita, ($500,000 $500,000) $0$ 0 Swiss subsidiary ($950,000 $500,000 $250,000) $30,000170,000Total net income for Anita Corporationand its subsidiaries on transfers to Switzerland$170,000From the viewpoint of Anita Corporation and its subsidiaries together, overall after-tax operating income is maximized if the machine is transferred to the Swiss subsidiary (after-tax operating income of $170,000 versus after-tax operating income...
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.

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33 - 22-32(Contd.)b.Transfers from Anita to the Swiss...

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