Question 1

What power is given to the Internal Revenue Service (IRS)  under code section 482?

Accepted Answer

A)  Power to eliminate intercompany transactions
B)  Authority to audit international transfer prices
C)  Authority to impose tariffs on foreign imports
D)  All of the above

Question 2

Which of the following is true about advance pricing agreements?

Accepted Answer

A)  They are only granted for intercompany transactions between a U.S.parent and a foreign subsidiary.
B)  They are only granted for intercompany transactions between a foreign parent and a U.S.corporation.
C)  In 2003, the IRS approved several thousand advance pricing agreements for U.S.taxpayers.
D)  None of the above is true.

Question 3

The Internal Revenue Service determined that Covington Ltd.should have been using a transfer price of $400 for the purchase of goods from its U.S.subsidiary but had set the price at $50.What is the rate of penalty that the IRS can impose on the taxpayer?

Accepted Answer

A)  10% of the amount of taxes underpaid
B)  20% of the amount of taxes underpaid
C)  40% of the amount of taxes underpaid
D)  100% of the amount of taxes underpaid

Question 4

For what reason are the transfer prices of imports more closely monitored worldwide than are exports?

Accepted Answer

A)  Political implications
B)  Effect on local job availability
C)  Impact on a country's balance of trade
D)  All of the above

Question 5

Which cost will be minimized by setting a low transfer price?

Accepted Answer

A)  Withholding taxes on a downstream transfer
B)  Import duties
C)  Currency devaluation of foreign cash flows
D)  All of the above

Question 6

Using the comparable profits method of transfer pricing, the transfer price is determined by:

Accepted Answer

A)  referring to an objective measure of profitability earned by uncontrolled taxpayers on comparable, uncontrolled sales.
B)  adding a standard profit margin to the operating expenses of the buying division.
C)  dividing a reasonable amount of profit between the selling and buying divisions.
D)  comparing the normal profits of the selling and buying divisions and basing the price on the highest margin.

Question 7

Profit indicators that might be considered in applying the comparable profits method include the ratio of:

Accepted Answer

A)  operating income to operating assets.
B)  debt to equity.
C)  receivables to net sales.
D)  operating expenses to net sales.

Question 8

Historically, which industry is found most at risk for a transfer pricing adjustment?

Accepted Answer

A)  Consumer packaged goods
B)  Pharmaceuticals
C)  Petroleum
D)  Manufacturing

Question 9

Which is NOT a common risk associated with local authorities' scrutiny of a company's transfer prices?

Accepted Answer

A)  Potential double taxation
B)  Uncertainty as to the group's worldwide tax burden
C)  Problems in relationships with local tax authorities
D)  Discovery of a tax treaty violation

Question 10

Which of the following is a reason for a parent to use discretionary transfer prices?

Accepted Answer

A)  Improve competitive position of foreign operation
B)  Minimize import duties
C)  Avoid restrictions on repatriation of profits
D)  All of the above

Question 11

What is the primary difficulty of using market-based transfer prices for intercompany transactions?

Accepted Answer

A)  Markets that are too complex
B)  Lack of a well-developed market
C)  Lack of objectivity
D)  Operating inefficiencies are transferred from one subsidiary to another

Question 12

According to the study published by Professors Chan and Lo in 2004, which of the following variables is important when market-based methods of determining transfer prices are preferred?

Accepted Answer

A)  Restrictions on profit repatriation
B)  Good relationship with local government
C)  Minimization of import duties
D)  Risk of expropriation and nationalization

Question 13

What is the advantage of an advance pricing agreement?

Accepted Answer

A)  IRS (Internal Revenue Service)  will not challenge the transfer price after the tax return is filed if the agreement is followed.
B)  Worldwide taxes will be minimized.
C)  The brief form explaining the transfer price to be used can be completed with minimal effort by the taxpayer but will reduce a tremendous amount of work later.
D)  All of the above are advantages of APA.

Question 14

Which of the following statements is true about applying the arm's-length standard for transfer pricing?

Accepted Answer

A)  A unique transfer price will be objectively determined using the arm's-length concept.
B)  Since a range of transfer prices would conform to the arm's-length concept, taxpayers can minimize taxes by choosing a transfer price at one end of the range.
C)  The arm's-length concept is accepted worldwide as the optimal transfer pricing model.
D)  Purchasing divisions prefer the arm's-length standard for transfer pricing over alternative methods.

Exam 12: International Transfer Pricing

What is the advantage of an advance pricing agreement?

Correct Answer
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According to the study published by Professors Chan and Lo in 2004, which of the following variables is important when market-based methods of determining transfer prices are preferred?

Correct Answer
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Profit indicators that might be considered in applying the comparable profits method include the ratio of:

Correct Answer
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Using the comparable profits method of transfer pricing, the transfer price is determined by:

Correct Answer
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For what reason are the transfer prices of imports more closely monitored worldwide than are exports?

Correct Answer
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What power is given to the Internal Revenue Service (IRS) under code section 482?

Correct Answer
verified

Which of the following is true about advance pricing agreements?

Correct Answer
verified

Which is NOT a common risk associated with local authorities' scrutiny of a company's transfer prices?

Correct Answer
verified

The Internal Revenue Service determined that Covington Ltd.should have been using a transfer price of $400 for the purchase of goods from its U.S.subsidiary but had set the price at $50.What is the rate of penalty that the IRS can impose on the taxpayer?

Correct Answer
verified

Which of the following is a reason for a parent to use discretionary transfer prices?

Correct Answer
verified

What is the primary difficulty of using market-based transfer prices for intercompany transactions?

Correct Answer
verified

Which of the following statements is true about applying the arm's-length standard for transfer pricing?

Correct Answer
verified

Which cost will be minimized by setting a low transfer price?

Correct Answer
verified

Historically, which industry is found most at risk for a transfer pricing adjustment?

Correct Answer
verified

Exam 12: International Transfer Pricing

What is the advantage of an advance pricing agreement?

Correct AnswerverifiedShow Answer

According to the study published by Professors Chan and Lo in 2004, which of the following variables is important when market-based methods of determining transfer prices are preferred?

Correct AnswerverifiedShow Answer

Profit indicators that might be considered in applying the comparable profits method include the ratio of:

Correct AnswerverifiedShow Answer

Using the comparable profits method of transfer pricing, the transfer price is determined by:

Correct AnswerverifiedShow Answer

For what reason are the transfer prices of imports more closely monitored worldwide than are exports?

Correct AnswerverifiedShow Answer

What power is given to the Internal Revenue Service (IRS) under code section 482?

Correct AnswerverifiedShow Answer

Which of the following is true about advance pricing agreements?

Correct AnswerverifiedShow Answer

Which is NOT a common risk associated with local authorities' scrutiny of a company's transfer prices?

Correct AnswerverifiedShow Answer

The Internal Revenue Service determined that Covington Ltd.should have been using a transfer price of $400 for the purchase of goods from its U.S.subsidiary but had set the price at $50.What is the rate of penalty that the IRS can impose on the taxpayer?

Correct AnswerverifiedShow Answer

Which of the following is a reason for a parent to use discretionary transfer prices?

Correct AnswerverifiedShow Answer

What is the primary difficulty of using market-based transfer prices for intercompany transactions?

Correct AnswerverifiedShow Answer

Which of the following statements is true about applying the arm's-length standard for transfer pricing?

Correct AnswerverifiedShow Answer

Which cost will be minimized by setting a low transfer price?

Correct AnswerverifiedShow Answer

Historically, which industry is found most at risk for a transfer pricing adjustment?

Correct AnswerverifiedShow Answer

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