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Transfer pricing
2.4 Minimising the global tax liability
When a divisionalised company operates entirely within one tax regime the transfer
pricing policy will have a minimal impact on the corporate tax bill. However
multinational companies can and do use their transfer pricing policies to move profits
around the world and thereby minimise their global tax liabilities.
2.5 Recording the movement of goods and services
In practice, an extremely important function of the transfer pricing system is simply to
assist in recording the movement of goods and services.
2.6 Fair allocation of profits between divisions
Most of the advantages claimed for divisionalisation are behavioural. Insofar as
transfer pricing has a material effect on divisional profit it is essential that managers
perceive the allocation of corporate profit as being fair if the motivational benefits are
to be retained.
A number of these objectives can conflict with each other, and prove
difficult to achieve in practice. It is highly unlikely that any one method
would meet all the firm's requirements in all circumstances the best that
can be hoped for is a reasonable compromise.
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