4.

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Question: 4. Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges…
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Trans Atlantic Metals has two operating divisions. Its forging
operation in Finland forges raw metal, cuts it, and then ships it
to the United States where the company’s Gear Division uses the
metal to produce finished gears. Operating expenses amount to $10.5
million in Finland and $30.5 million in the United States exclusive
of the costs of any goods transferred from Finland. Revenues in the
United States are $75.5 million.

     If the metal were purchased from
one of the company’s U.S. forging divisions, the costs would be
$15.50 million. However, if it had been purchased from an
independent Finnish supplier, the cost would be $25 million. The
marginal income tax rate is 65 percent in Finland and 45 percent in
the United States.

Required:

What is the company’s total tax liability to both jurisdictions
for each of the two alternative transfer pricing scenarios ($15.5
million and $25 million)? (Enter your answers in dollars
and not in millions of dollars.)


Transfer price

15.5 million

25 million
Total tax
liability

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