Respuesta :
To minimize the corporation's overall income tax, ABCO should set its transfer prices between its subsidiaries, delta should sell parts to Parry at high prices. So, option (B) will be regarded as suitable.
Give a brief account on tax rate.
The tax rate is the amount that an individual or organization is charged in taxes. The United States employs a progressive tax rate system, where the amount of tax levied rises as taxable income for an individual or company increases. This system is used by both the federal government and several state governments. With a progressive tax rate, more money is collected from people with higher incomes. The government typically taxes its citizens to fund infrastructure construction and maintenance. The revenue from taxes is invested in the advancement of the country, society, and everyone who lives there. A tax rate is applied to the money that a taxpayer receives in the US and many other nations across the world.
A portion of the taxpayer's income, whether it comes from wages or salaries, investment income like dividends and interest, capital gains from investments, or profits from selling products or services, is removed and sent to the government.
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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.
