1. Affiliate X in Ireland sells 10,000 units to Affiliate Y located in Canada per year. The marginal corporate tax rate for Ireland is 15% and 25% for Canada. The transfer price per unit is currently set at $2,000 which is variable cost. It can be set as high as $2,450, which is full cost plus a markup. Calculate the increase in annual after-tax profits if the higher transfer price of $2,450 per unit is used.
2. How might a MNC use transfer pricing strategies? What are the various means the taxing authority of a country might use to determine if a transfer price is reasonable?