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 
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 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 
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 3

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. 
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 4

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

Question 5

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. 
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 6

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. 
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 7

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 
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 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 
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

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 
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 10

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

Question 11

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. 
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.

Question 12

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

Question 13

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

Question 14

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

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

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

Which of the following is true about advance pricing agreements?

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

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

What is the advantage of an advance pricing agreement?

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

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

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?

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?

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

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

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

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

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

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Exam 12: International Transfer Pricing

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

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

Which of the following is true about advance pricing agreements?

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

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

What is the advantage of an advance pricing agreement?

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

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

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?

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?

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

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

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

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

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters