Determine the total amount of taxes and duties paid

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Question - Alina Company (U.S. based company) imports parts from its Finnish subsidiary that are used in the production of toys. For the Finnish subsidiary it costs $2 to produce one part and $0.3 to ship one part to Alina Company.

Alina Company uses parts to produce a toy that it sells to US toy stores for $5.5 per unit. The following rates apply:

Finnish Income Tax 50%

US Income tax 35%

US import duties 10% of invoice price.

Required -

1. Determine the total amount of taxes and duties paid to the US and Finnish governments and net income, earned by both companies, if the part is sold to Alina Company at a price of $2.5 per unit.

2. Determine the total amount of taxes and duties paid to the US and Finnish governments and net income, earned by both companies, if the part is sold to Alina Company at a price of $4 per unit.

3. As an international tax consultant, which price would you recommend to use as the transfer price, assuming there is no any other factors to consider, besides the cost consideration?

Reference no: EM133077446

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