Ok guys here we are to takle this really and wordy tough question.
Before diving into the question I would like to share what for for me is the major \(takeaway\) from this such question (and actually from all questions):
- whenever you see a question like this first of all is important to understand what's going on, even reading the stimulus two times. On average you should be able to solve a question in two minutes but this is "on average" so do not be afraid to spend even 2.50 or 3.00 minutes. For sure such question pop-up in front of the screen if you do well on the test, no matter what.
- when a question is blury and confused and wordy try to spot an anchor word or sentence or part of the stimulus that leads you on the right track.
Now back to the quesyion at stake:
the stem says
Quote:
If the above statements are true, then which of the following could be a strategy adopted by a
company that wants to get the maximum benefit out of transfer pricing?
the last part of the stimulus says
Quote:
These intra-company royalty transactions
are supposed to be arm’s-length, but are often priced to minimise profits in high-tax countries
and maximise them in low-tax ones.
So this lead us to B D and E
(B) Charge its subsidiary located in a low tax rate country higher prices for products sold Here the key word is charge. This means that the company \(receives\) money but from the argument we need an answer where the comany \(pays\) the associate company of the holding
D) Pay its subsidiary located in a low tax rate country low prices for products bought If this were true the tax rate would be low but due to the low prices paied by the company the \(OVERALL\) gain of the holding would be low, no matter what
(E) Pay its subsidiary located in a low tax rate country high prices for products bought This is what we are looking for..........the tax rate is low the company pay an high price to the subsidiary AND at the same time the expenditure in taxes is low. In other words: if the company pays 100 and the taxes are 10 the gain is 90. Therefore, the OVERALL situation gains from this scenario (i.e. the holding)
E is the OA.
Thanks guys for discussion.