Special features of multinational corporations. Out the main objectives of a transfer pricing system. Modernisation of business processes of enterprise, use of innovative technologies. Preparing the profit and loss account of the company of Crystal ltd.
Plan Introduction 1. Theoretical aspects 1.1 Special features of multinational corporations 1.2 Transfer pricing backgrounds 2. Transfer pricing principles of Crystal ltd. Company 2.1 Transfer pricing scenarios 2.2 Coverage of transfer pricing methods Conclusion References Introduction transfer pricing modernisation Transfer pricing is the set of mechanisms which is used to attach prices to goods or services which are traded between two divisions of the same company. The classic example involves one division (the “selling division”, or “SD”) which produces a component which is required by another division (the “buying division”, or “BD”). The component is used by the BD in the manufacture of a product which it sells on the open market. In case all of this sounds a bit abstract, let’s consider a simple example of a company in which the SD manufactures car engines and the BD manufactures cars. A couple of things are obvious: 1. The BD needs the output of the SD, because the BD needs car engines in order to make cars. Alternatively, the BD may be able to buy engines from an external supplier if, for example, the BD and SD cannot agree on a transfer price for the engines. 2. The SD can sell its output either to the BD or to external customers (in this case, these external customers would be other car manufacturers, many of which would be only too happy to buy in a ready-made engine). The transfer price represents a source of revenue to the SD, and a cost to the BD. Therefore, there is potential for inter-divisional conflict (or at least a need for inter-divisional negotiations) since the SD will want to maximize the transfer price while the BD will want to minimize it.
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