Transfer Pricing

Shahid Musthafa
Mind Map by , created almost 6 years ago

Master ACCA F5: Performance Management Mind Map on Transfer Pricing, created by Shahid Musthafa on 11/15/2013.

Shahid Musthafa
Created by Shahid Musthafa almost 6 years ago
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Transfer Pricing
1 Objectives of Transfer Pricing - "GOPART"
1.1 Recording the movement of goods and services.
1.1.1 In practice, an extremely important function of the transfer pricing system is simply to assist in recording the movement of goods and services.
1.2 Autonomy
1.2.1 The system used to set transfer prices should seek to maintain the autonomy of profit centre managers. If autonomy is maintained, managers tend to be more highly motivated but suboptimal decisions may be made.
1.3 Goal congruence
1.3.1 The decisions made by each profit centre manager should be consistent with the objectives of the organisation as a whole, i.e. the transfer price should assist in maximising overall company profits. A common feature of exam questions is that a transfer price is set that results in suboptimal behaviour.
1.4 Performance measurement
1.4.1 The buying and selling divisions will be treated as profit centres. The transfer price should allow the performance of each division to be assessed fairly. Divisional managers will be demotivated if this is not achieved.
1.5 Minimise global tax liability
1.5.1 multinational companies can use their transfer pricing policies to move profits around the world and thereby minimise their global tax liability.

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