Please answer this question Case Tech Sonic Incorporated Tec

Please answer this question

Case: Tech Sonic Incorporated Tech Sonic Inc. is a large multinational computer chip manufacturer with headquarters in Okayama, Japan. The company\'s production and manufacturing facilities are located in Europe, East Asia, Germany, and the United States. The company\'s products are dis- tributed primarily through contracted retail establishments and company-owned outlets around the world. Because of Tech Sonic\'s vertically integrated global operations, the company has achieved a competitive advantage when it comes to adapting to new and changing market conditions. Approximately 40 percent of the company\'s products are transferred to facilities in the United States

Solution

Solution

They are a number of issues that Mr. Satoh must consider in setting intra-firm transfer pricing policies within the Tech Sonic.

1) The differential tax rates in the various countries and its impact on the overall corporation. The tax implications of the various scenarios on the after-tax profitability of the company and the impact of transfer prices in conjunction with differences in tax rates in various countries help to improve the company\'s worldwide after tax earnings.

2) Thy impact of intra-firm transfer pricing policies on the employees in the various subsidiaries. The profitability of subsidiaries would be impacted by transfer pricing.

3) The exchange rate fluctuations impact the profitability of the overall corporation will fluctuate the input cost it increases the competitiveness or profitability, or both.

4) The other important factor is government policies related to transfer pricing, the level of enforcement, and the consequences of transfer pricing abuse violations.