What are the alternative objectives in setting transfer prices?
1. Lowering duty costs → goods shipped into high-tariff countries at minimal transfer prices, making duty base and duty low.
2. Reducing income taxes (in high-tax countries) → overpricing goods transferred to units in these countries, eliminates profits and shifts them to low-tax countries. Helps make financial statements look good too.
3. Facilitates dividend repatriation → invisible income may be taken out in the form of high prices for products or components shipped to units in that country.
4. Showing the feasible amount of profit → profit is flexible depending on who the company wishes to please.