Posted: September 1st, 2023
Assignment
Case 1: (exercise 9, page 396)
Consider the following scenario:
Acme Company transfers a product to a foreign affiliate at $15 per unit, and the IRS determines the correct price should have been $65 per unit. The adjustment results in an increase in U.S. tax liability of $1,250,000.
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Required:
A. Define the circumstances for a "gross valuation misstatement" and the penalty which can be imposed by the IRS as a result.
B. Due to the change in price, what amount of penalty for underpayment of taxes will Acme Company pay?
C. What is Acme's total tax liability?
*Do not forget to include proper APA formatting and citation where necessary. Do not forget to respond to the other cases this week.
Case 2 (exercise 18, page 362)
Daisan Company is in the process of deciding where to establish a European manufacturing operation: France, Spain, or Sweden. Daisan's home country does not have a tax treaty with any of these countries. Regardless of location, the operation is expected to generate pretax income of 1 million euros annually. The operation will distribution 100 percent of its after-tax income to Daisan Company as a dividend each year
A. Using the information on effective income tax rates and withholding tax rates provided in Exhibit 8-1 and Exhibit 8-3, determine the net amount of dividend that Daisan would receive annually from an investment in each of these countries.
B. If maximizing after-tax dividends is the sole criterion, in which of these three countries should Daisan locate its European operation, and why?
*Do not forget to include proper APA formatting and citation where necessary. Do not forget to respond to the other cases this week.
Case 3 (exercise 13, page 397)
Lahdekorpi OY, a Finnish corporation, owns 100 percent of Three-O Company, a subsidiary incorporated in the United States.
Use the following scenarios to determine (a) and (b) below for each.
Scenario 1 - Lahdekorpi manufactures tablecloths at a cost of $20 each and sells them to unrelated distributors in Canada for $30 each. Lahdekorpi sells the same tablecloths to Three-O Company, which then sells them to retail customers in the United States.
Scenario 2 - Three-O Company manufactures men's flannel shirts at a cost of $10 each and sells them to Lahdekorpi, which sells the shirts in Finland at a retail price of $30 each. Lahdekorpi adds no significant value to the shirts. Finnish retailers of men's clothing normally earn a gross profit of 40 percent on sales price.
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Scenario 3 - Lahdekorpi manufactures wooden puzzles at a cost of $2 each and sells them to Three-O Company for distribution in the United States. Other Finnish puzzle manufacturers sell their product to unrelated customers and normally earn a gross profit equal to 50 percent of the production cost.
Required:
a. Determine the best transfer pricing method for each scenario.
b. Determine the appropriate transfer price in each of the scenarios.
c. Defend your choices for both (a) and (b).
Requirements
• Each case should have approximately 200 to 300 words
• Source: Scholarly articles and the book
• Properly document your sources using APA style in-text references and a reference list.
• Plagiarism free work