foreign taxes and transfer pricing

Assignment Instructions

Taxes paid to governments are one of the most significant costs incurred by business enterprises. Multinational enterprises strive to minimize this cost through decisions in which taxation is an important variable. Multinational firms use transfer pricing to accomplish a number of goals such as performance evaluation and cost minimization.

Respond to the following questions from your course text.

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Your paper should be no less than 300 words and no longer than 500 words and be compliant with all APA composition and referencing requirements. The problems should be solved on the basis of IFRS unless otherwise stated.

Chapter 11 Question

Brown Corporation has an affiliate in France (Brun SA) that sells products manufactured at Brown’s factory in Columbia, South Carolina. In the current year, Brun SA earned 10 million euros before tax. Assume that the effective tax rate Brun SA pays in France is 30 percent. French taxes were paid at the end of the year. Cash distributions to Brown Corporation were made on July 1 and December 31 in the amount of 1 million euros each. Relevant exchange rates for the current year are as follows:

Relevant Exchange Rates for the Current Year
Date Rate
January 1 €1 = $1.025
July 1 €1 = $0.900
Average €1 = $0.925
December 31 €1 = $0.980
  1. Assuming that Brun SA is organized as a branch, determine the amount of branch profits in U.S. dollars that Brown Corporation must include in its U.S. taxable income and the available tax credit.
  2. Assuming that Brun SA is organized as a subsidiary, determine the amount of foreign source income in U.S. dollars that Brown Corporation must include in its U.S. taxable income and the available tax credit.
Chapter 12 Question

Superior Brakes Corporation manufactures truck brakes at its plant in Mansfield, Ohio, at a cost of 10 dollars per unit. Superior sells its brakes directly to U.S. truck makers at a price of 15 dollars per unit. It also sells its brakes to a wholly owned sales subsidiary in Brazil that, in turn, sells the brakes to Brazilian truck makers at a price of 16 dollars per unit. Transportation cost from Ohio to Brazil is 0.20 dollar per unit. Superior’s sole competitor in Brazil is Bomfreio SA, which manufactures truck brakes at a cost of 12 dollars per unit and sells them directly to truck makers at a price of 16 dollars per unit. There are no substantive differences between the brakes manufactured by Superior and Bomfreio.

Given the information provided, discuss the issues related to using (a) the comparable uncontrolled price method, (b) the resale price method, and (c) the cost-plus method to determine an acceptable transfer price for the sale of truck brakes from Superior Brakes Corporation to its Brazilian subsidiary.

Submission Requirements

Your paper should meet the following requirements:

  • Written communication: Written communication is free of errors that detract from the overall message.
  • APA formatting: Resources and citations are formatted according to current APA style and formatting.
  • Length of paper: 300–500 typed, double-spaced pages.
  • Font and font size: Times New Roman, 12 point.