Question 1

According to IRS code Section 482,what is the standard used by the IRS for international transfer pricing?

Accepted Answer

A)  cost-based prices
B)  discretionary prices
C)  negotiated prices
D)  arm's length prices

Question 2

How is goal congruence achieved in decentralized organizations?

Accepted Answer

A)  forcing managers to take on corporate goals as their personal goals
B)  creating incentives for managers to make decisions that are consistent with corporate goals
C)  setting policies that direct managers in the way decisions should be made
D)  eliminating the authority for divisional managers to make operating decisions

Question 3

Which of the following is a limitation of cost-based transfer pricing?

Accepted Answer

A)  determining which cost to use
B)  lack of incentive for selling division to control cost
C)  inefficiencies in one unit may be transferred to another unit
D)  all of the above

Question 4

Subsidiary X,located in a country with a 25% corporate income tax rate,and Subsidiary Y,located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko,the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. How will subsidiary managers in the decentralized organization view this decision by parent company management?

Accepted Answer

A)  They will embrace it whole-heartedly because corporate profits will increase.
B)  The manager of Subsidiary Y will be concerned about the decline in Y's profit and the effect this will have on his/her bonus.
C)  They won't mind because the intercompany transaction will still occur.
D)  They won't notice because all decisions in the decentralized organization are made by the parent.

Question 5

A cost-plus transfer pricing scheme is allowed by the Internal Revenue Service when:

Accepted Answer

A)  it is easiest for the taxpayer to calculate.
B)  the related party is primarily a sales subsidiary.
C)  there is no readily comparable market price and the related buyer is more than just a distributor.
D)  the average industry mark-up is greater than the taxpayer's standard markup.

Question 6

Correlative relief is a component of the U.S.Model Income Tax Treaty. What is correlative relief?

Accepted Answer

A)  Additional tax imposed by the IRS related to a transfer pricing audit is offset with a foreign tax credit in the same amount.
B)  When the IRS adjusts an international transfer price,the tax authority in the foreign country makes a corresponding adjustment.
C)  The burden of revising transfer pricing schemes is offset by reduction of the corporate tax rate on foreign source income.
D)  IRS and foreign taxing authorities will collaborate in determining the appropriate international transfer price.

Question 7

What is a prime reason that the IRS has found it difficult to obtain information needed to examine the transfer pricing scheme of foreign parents with U.S.subsidiaries?

Accepted Answer

A)  The information is held by the foreign parent,which is beyond the jurisdiction of the U.S.taxing authority.
B)  Since transfer pricing is not a significant issue to multinational corporations,little information about it exists.
C)  United States does not have tax treaties with the most important countries involved in foreign direct investment in this country.
D)  Computer systems have not been adapted to receive the data from companies in foreign countries.

Question 8

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 9

While there are many advantages of decentralization,what is the major disadvantage of decentralized organizations?

Accepted Answer

A)  manageability of multiple divisions in both domestic and international operations
B)  possible conflict between division managers' decisions and goals of the organization
C)  making timely operating decisions
D)  all of the above

Question 10

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

Which of the following is a limitation of cost-based transfer pricing?

Correct Answer
verified

According to IRS code Section 482,what is the standard used by the IRS for international transfer pricing?

Correct Answer
verified

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

Correct Answer
verified

How is goal congruence achieved in decentralized organizations?

Correct Answer
verified

What is a prime reason that the IRS has found it difficult to obtain information needed to examine the transfer pricing scheme of foreign parents with U.S.subsidiaries?

Correct Answer
verified

Correlative relief is a component of the U.S.Model Income Tax Treaty. What is correlative relief?

Correct Answer
verified

A cost-plus transfer pricing scheme is allowed by the Internal Revenue Service when:

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

While there are many advantages of decentralization,what is the major disadvantage of decentralized organizations?

Correct Answer
verified

Exam 12: International Transfer Pricing

Which of the following is a limitation of cost-based transfer pricing?

Correct AnswerverifiedShow Answer

According to IRS code Section 482,what is the standard used by the IRS for international transfer pricing?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How is goal congruence achieved in decentralized organizations?

Correct AnswerverifiedShow Answer

What is a prime reason that the IRS has found it difficult to obtain information needed to examine the transfer pricing scheme of foreign parents with U.S.subsidiaries?

Correct AnswerverifiedShow Answer

Correlative relief is a component of the U.S.Model Income Tax Treaty. What is correlative relief?

Correct AnswerverifiedShow Answer

A cost-plus transfer pricing scheme is allowed by the Internal Revenue Service when:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

While there are many advantages of decentralization,what is the major disadvantage of decentralized organizations?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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