transfer pricing mark fielding-pritchard 1. why does tp have a bad name basic scheme tax in uk is...
TRANSCRIPT
![Page 1: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/1.jpg)
1
Transfer PricingMark Fielding-Pritchard
![Page 2: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/2.jpg)
2
Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in Scotland which cost $5,
sells in India for $25 What should be the transfer price? What if Markov Scotland sells to Markov in Far Far
Away (an offshore zone with tax rate 1% for $6 and MFFA sells on to in India for $24?
So tax authorities treat transfer pricing very seriously; and most developing companies have no concept of group relief so even transfers inside the country between group companies will be subject to TP investigations
![Page 3: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/3.jpg)
3
Transfer Pricing
For P5 remember ethical considerations Good transfer price will have elements of Goal congruence Fairness Autonomy Bookkeeping Minimise tax In a perfect market transfer price will be market
price
![Page 4: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/4.jpg)
4
Transfer price negotiated
Max price buyer will pay is lower of
External purchase price
Selling price minus marginal cost
Min price seller will take is marginal cost
Transfer Price when Seller Has Surplus Capacity
![Page 5: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/5.jpg)
5
Transfer price negotiated
Max price buyer will pay is lower of
External purchase price
Selling price minus marginal cost
Min price seller will take is marginal cost + lost contribution
Transfer Price when Seller Has No Surplus Capacity
![Page 6: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/6.jpg)
6
Practical Methods
Market Based Use market price as adjusted for differences Cost Based Cost + Standard cost Marginal cost Full cost Opportunity cost
![Page 7: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/7.jpg)
7
Other Methods
Marginal cost plus a lump sum Dual pricing
![Page 8: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/8.jpg)
8
Q49 SSA a)
Goal congruence Fairness Autonomy Bookkeeping Minimise tax
![Page 9: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/9.jpg)
9
Q49 SSA b)
Division A is currently producing 150000 units, therefore there is spare capacity of 10000 units
Knee Ankle Elbow Wrist Competitor Ankle
Contribution per unit
14 8 10 5 6
![Page 10: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/10.jpg)
10
Q49 SSA b) For quotation 1 A has spare capacity so we should manufacture Transfer price should be variable cost + negotiation (VC=7) Anticipated TP is $10.50 which is higher than $9. Division B will
buy from competitor so use $9 or some negotiated number For quotation 2 first 10000 should be at variable cost +
negotiation, For 8000 it is better to stop producing wrists and manufacture ourselves
I would recommend 18000 units at $9
![Page 11: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/11.jpg)
11
Q49 SSA b)
Overall principle is to maximise group profit Increased sales of ankle units first 10000 units will
increase profits by $80000 Contribution per unit is $8 if manufactured and $6 if
bought, as wrists generated $5 we should cut wrists and boost ankles
Transfer price needs to be not more than $9 to make it advantageous for B
![Page 12: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/12.jpg)
12
Q49 SSA b)
A B CompetitorSales Price 10.5 15 15Cost 7 10.5 9Contribution 3.5 4.5 618000 units 63000 81000 108000Tax (40/20/20%)
25200 16200 21600
After Tax Income
102600 86400
Transfer Price $10.5
![Page 13: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/13.jpg)
13
Q49 SSA b)
A B CompetitorSales Price 9 15 15Cost 7 9 9Contribution 2 6 618000 units 54000 108000 108000Tax (40/20/20%)
21600 21600 21600
After Tax Income
118800 86400
Transfer Price $9
![Page 14: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/14.jpg)
14
Q55 Landual lamps a)
What to write? In general some theory and some specifics Therefore what makes up good TP policy? Goal congruence, Fairness, Autonomy Bookkeeping
Minimise tax Housing- costs Electrical- market prices
![Page 15: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/15.jpg)
15
Q55 Landual lamps a)
Housing- costs Electrical- market prices Electrical earns 1557- 804-370= 383 However adverse variance of 575k probably means
that Electrical is not profitable
![Page 16: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/16.jpg)
16
Q55 Landual lamps a)
Housing is based on 8204 + 6902 As full actual costs there is no pressure to reduce
costs No allocated cost is covered
![Page 17: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/17.jpg)
17
Q55 Landual lamps b)
The change is from all costs to variable costs Usually where there are intricate designs overhead
is an important component of costs so this would not seem logical without more information
![Page 18: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/18.jpg)
18
Value For Money- Non For Profits
No readily available scale exists How to compare costs and benefits Timescales Externalities
![Page 19: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/19.jpg)
19
Value For Money 3Es
Economy Effectiveness Efficiency
![Page 20: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/20.jpg)
20
Value For Money
Goal Systems Resources Internal Processes
![Page 21: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/21.jpg)
21
Value For Money- Problems
Diverse objectives Multiple objectives Politics Benchmarking (&league tables)
![Page 22: Transfer Pricing Mark Fielding-Pritchard 1. Why Does TP Have a Bad Name Basic Scheme Tax in UK is 30%, Tax in India is 40% Markov makes bicycles in](https://reader035.vdocuments.site/reader035/viewer/2022070400/56649e2a5503460f94b1817a/html5/thumbnails/22.jpg)
22
Value For Money-Target Setting
Central control Difficulty level All or nothing Too many targets Inappropriate targets Cost Ownership Gaming Conflict