ACG FINAL EXAM TP ARTICLES COMPLETE
QUESTIONS AND CORRECT ANSWERS |ALREADY
GRADED A+||BRAND NEW VERSION!
What is a transfer price? - CORRECT ANSWER -Set and used by MNCs to quantify the goods
and services transferred from one subsidiary in a specific country to another subsidiary in
another country
What are the internal and external objectives of transfer pricing? - CORRECT ANSWER -
Internal: facilitating performance evaluation between managers in foreign subsidiaries
External: reduction of global income taxes; reduction of tariffs; minimization of foreign
exchange risk; avoidance of any conflict with host countries' governments; management of cash
flows; and increasing competitiveness in the global markets
What is the most important objective of TP to MNCs? - CORRECT ANSWER -Allocate profit
among different subsidiaries in different countries with different economic and tax structures to
minimize overall tax liability
Why are national governments concerned about TP? - CORRECT ANSWER -Governments are
concerned that MNCs manipulate TP to avoid paying corporate income taxes
What has been the response of government to TP issues? - CORRECT ANSWER -Tax
authorities have developed a complex set of rules and procedures at the national and international
levels designed to regulate MNC TP policies.
What is the arm's length transfer pricing rule? - CORRECT ANSWER -All cross border business
transactions between an American subsidiary and its foreign parent should be evaluated based on
the contractual terms made by the two related parties on the condition that such terms are
consistent with the two parties' behavior and the economic substance of the related business
transactions
, What is the right transfer price? - CORRECT ANSWER -The price that best takes advantage of
differences in tax rates in different counties to minimize tax liability on a global basis, hence,
improve cash flow while adhering to the requirements of an "arm's length" transaction.
What are the 5 different TP methods discussed in the article? - CORRECT ANSWER --Cost plus
and market prices
-Market price
-Cost-based prices
-Resale price method
-Profit split method
What type of documentation is required for transfer pricing? - CORRECT ANSWER --
description of the transactions;
-detailed description and justification of the valuation method used;
-valuation range derived from the valuation method selected;
-identification of relevant comparable related to companies operating in the same geographical
markets if reasonably available to the taxpayer
What is an Advanced Pricing Agreement? - CORRECT ANSWER -An agreement between a
taxpayer and the Service in which the parties set forth, in advance of controlled transactions, the
best transfer pricing method within the meaning of Section 482 of the Code and the regulations
What are the different types of APA? - CORRECT ANSWER --Bilateral
-Multilateral
What is the link between SOX and TP? Between Internal Audit and TP? - CORRECT ANSWER
-- Implementing internal controls and mandating senior management to verify the effectiveness
of those controls, as stated in SOX Section 302(a) (4)
-
QUESTIONS AND CORRECT ANSWERS |ALREADY
GRADED A+||BRAND NEW VERSION!
What is a transfer price? - CORRECT ANSWER -Set and used by MNCs to quantify the goods
and services transferred from one subsidiary in a specific country to another subsidiary in
another country
What are the internal and external objectives of transfer pricing? - CORRECT ANSWER -
Internal: facilitating performance evaluation between managers in foreign subsidiaries
External: reduction of global income taxes; reduction of tariffs; minimization of foreign
exchange risk; avoidance of any conflict with host countries' governments; management of cash
flows; and increasing competitiveness in the global markets
What is the most important objective of TP to MNCs? - CORRECT ANSWER -Allocate profit
among different subsidiaries in different countries with different economic and tax structures to
minimize overall tax liability
Why are national governments concerned about TP? - CORRECT ANSWER -Governments are
concerned that MNCs manipulate TP to avoid paying corporate income taxes
What has been the response of government to TP issues? - CORRECT ANSWER -Tax
authorities have developed a complex set of rules and procedures at the national and international
levels designed to regulate MNC TP policies.
What is the arm's length transfer pricing rule? - CORRECT ANSWER -All cross border business
transactions between an American subsidiary and its foreign parent should be evaluated based on
the contractual terms made by the two related parties on the condition that such terms are
consistent with the two parties' behavior and the economic substance of the related business
transactions
, What is the right transfer price? - CORRECT ANSWER -The price that best takes advantage of
differences in tax rates in different counties to minimize tax liability on a global basis, hence,
improve cash flow while adhering to the requirements of an "arm's length" transaction.
What are the 5 different TP methods discussed in the article? - CORRECT ANSWER --Cost plus
and market prices
-Market price
-Cost-based prices
-Resale price method
-Profit split method
What type of documentation is required for transfer pricing? - CORRECT ANSWER --
description of the transactions;
-detailed description and justification of the valuation method used;
-valuation range derived from the valuation method selected;
-identification of relevant comparable related to companies operating in the same geographical
markets if reasonably available to the taxpayer
What is an Advanced Pricing Agreement? - CORRECT ANSWER -An agreement between a
taxpayer and the Service in which the parties set forth, in advance of controlled transactions, the
best transfer pricing method within the meaning of Section 482 of the Code and the regulations
What are the different types of APA? - CORRECT ANSWER --Bilateral
-Multilateral
What is the link between SOX and TP? Between Internal Audit and TP? - CORRECT ANSWER
-- Implementing internal controls and mandating senior management to verify the effectiveness
of those controls, as stated in SOX Section 302(a) (4)
-
