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Chapter 12 - International Transfer Pricing
Case 12-2 Global Electronics Company
1. Determine transfer prices under three different methods.
a. Comparable uncontrolled price method
LG-Malay sells the same product to a related party (Electronic Superstores) and an
b. Resale price method
The transfer price under the resale price method can be determined by reviewing the
calculation used by Wal-Mart to determine its retail price of $324 per laser guitar:
c. Cost plus method
Case 12-2 Global Electronics Company (continued)
2. Given this set of facts, the highest price ($189 cost plus method price) results in the greatest
amount of consolidated after-tax net income.
Malaysia U.S. Consolidated
Comparable Uncontrolled Price
Method - $180
Sales $180.00 $333.00 $333.00
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Chapter 12 - International Transfer Pricing
Resale Price Method - $185
Sales $185.00 $333.00 $333.00
Cost Plus Method - $189
highest
Case 12-2 Global Electronics Company (continued)
3. When Malaysian profits are repatriated to the United States, the addition of Malaysian
withholding taxes causes the lowest price ($180 comparable uncontrolled price method) to
Transfer Price
Chapter 12 - International Transfer Pricing
Additional U.S. tax on dividend:
Case 12-2 Global Electronics Company (continued)
4. Even with the Malaysian withholding tax rate reduced to 10%, the lowest transfer price still
results in the greatest amount of after-tax cash flow for GEC. Note that in this case,
additional U.S. income tax must be paid on the dividend received from LG-Malay because
the effective Malaysian tax rate 23.5% [15% + 10%(1 - .15)] is less than the U.S. income tax
rate of 35%.
Transfer Price
$180 $185 $189
Malaysian net income $38.25 $42.50 $45.90
*Calculation of Additional U.S. Tax:
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Chapter 12 - International Transfer Pricing
b. overall FTC limitation $15.75 $17.50 $18.90
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