An organization that sells products to a foreign subsidiary wants to charge a price that will decrease import tariffs. Which of the following is the best course of action for the organization?
An organization that sells products to a foreign subsidiary wants to charge a price that will decrease import tariffs. Which of the following is the best course of action for the organization?
To reduce import tariffs, the organization should decrease the transfer price. Import tariffs are usually calculated as a percentage of the price of the goods being imported. By reducing the transfer price, the base amount on which the tariff is calculated is lower, thereby reducing the overall amount of import tariffs that need to be paid.
Me too thought A was a correct answer because lowering the transfer price would reduce profits and hence tarifs
A is correct
Per CFI: Transfer pricing helps in reducing duty costs by shipping goods into countries with high tariff rates by using low transfer prices so that the duty base of such transactions is lowered. So maybe it's A. I don't see how charging them the market price (arm's length) LOWERS the tariffs. A tariff is a percentage of whatever you sell at any price. So if it's 10% of $100, it's $10 - but if you LOWER the sale price to $50, it's 10% of $50, which is $5, ergo: Decreasing the transfer/sale price will also LOWER/DECREASE the tariffs.
May be import tariff is based on market prices which is based on fair values
why not A?
Should it be A?
why the answer, not D?