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Divisional performance appraisal and transfer pricing

8.3 Alternative transfer pricing methods

In order to achieve fairness two alternative methods may be
considered:

 Two part tariff: Transfer price is marginal cost/unit + periodic
lump sum to cover fixed costs

 Dual pricing: The buying and selling division recognise two
different transfer prices. The problem with this is that a period end
adjustment to the accounts will be needed.

8.4 International transfer pricing

Two issues

Taxation Remittance controls

 Buying and selling division  A country’s government may
may be based in different impose restrictions on the
countries transfer of profits from
domestic subsidiaries to
 They may try to increase foreign multinationals
profits by adjusting transfer
price to take advantage of
different tax rates in each
country

 Tax authorities will not allow

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