Strategic Tax Management: Transfer Pricing I

Play an AI-generated podcast conversation about this lesson

What is the main objective of the Profit Split Method (PSM)?

To allocate profits between associated enterprises on a 50/50 basis
To identify the most profitable transaction
To determine the arm's length price of a transaction
To divide profits or losses between associated enterprises on an economically valid basis (correct)

Which transfer pricing methodology involves a comparison between the price or margin used in a controlled transaction and an independent transaction in comparable circumstances?

Transactional Net Margin Method (TNMM)
Contribution Profit Split Approach
Comparable Uncontrolled Price (CUP) Method (correct)
Residual Profit Split Approach

What is the purpose of the arm's length principle?

To determine the most profitable transaction
To allocate profits between associated enterprises on a 50/50 basis
To ensure associated enterprises report identical profits
To ensure transactions between associated enterprises are priced as if they were independent (correct)

What is the primary purpose of transfer pricing in accordance with the UN Manual?

To set appropriate prices for cross-border transactions between associated enterprises (C) Signup and view all the answers

What is the key principle in determining whether a transfer price is comparable in transactions involving independent enterprises?

Arm's Length Principle (D) Signup and view all the answers

How many arm's length pricing methodologies are enumerated in Section 10 of RR 2-2013?

5 (C) Signup and view all the answers

What is the characteristic of associated enterprises in the context of transfer pricing?

They are enterprises under common control with the same persons or enterprises participating directly or indirectly in the management, control or capital of both enterprises (C) Signup and view all the answers

Which of the following is NOT an approach under the Profit Split Method (PSM)?

Transactional Net Margin Method (TNMM) (B) Signup and view all the answers

What is the main consideration in the comparability analysis under the Comparable Uncontrolled Price (CUP) Method?

All of the above (D) Signup and view all the answers

What is the purpose of transfer pricing in the context of a Multinational Enterprise (ME) and its associated enterprise (AE)?

To determine the appropriate transfer price for cross-border transactions (A) Signup and view all the answers

What is the implication of the Arm's Length Principle in transfer pricing?

It ensures that transfer prices are comparable to those in transactions involving independent enterprises (B) Signup and view all the answers

What is the assumption in the hypothetical scenario of the ME and its AE in terms of currency?

The currencies in the two tax jurisdictions are the same (D) Signup and view all the answers

What is the main strength of the CUP transfer pricing method?

It is direct and reliable where it is possible to locate comparable uncontrolled transactions (B) Signup and view all the answers

When is the RPM most useful?

When applied to marketing operations (A) Signup and view all the answers

What is the main weakness of the CUP transfer pricing method?

Difficulty in finding an exact similar uncontrolled transaction with no differences (B) Signup and view all the answers

What is the main purpose of the Cost Plus Method?

To evaluate the transfer price of semi-finished goods (C) Signup and view all the answers

In which situation is the Profit Split Method most useful?

When there is a joint facility arrangement (D) Signup and view all the answers

What is the main difficulty in the determination of costs in the Cost Plus Method?

Difficulty in the determination of costs (D) Signup and view all the answers