...TRANSFER PRICING Overview The essential feature of decentralization in large firms is the creation of responsibility centers (e.g. cost, profit, or investment centers). The performance of these responsibility centers is evaluated on the basis of various accounting numbers, such as standard and actual cost, divisional profit or return on investment. A central role of the management accounting system therefore is to evaluate (i.e. attach a dollar figure to) the transactions between the different responsibility centers. Under the subject cost allocation we studied alternative methods to charge user departments for the services rendered by service departments (frequently cost centers). Transfer prices are used to evaluate the goods and services exchanged between profit centers (divisions) of a decentralized firm. Hence, the transfer price is the price that one division of a company charges another division of the same company for a product transferred between the two divisions. 1. There are no cash flows between the divisions. The transfer price is used only for accounting purposes. 2. The transfer price becomes an expense for the receiving manager and a revenue for the supplying manager. 3. If intra-company transfers are accounted for at prices in excess of cost, appropriate elimination entries have to be made for external reporting purposes. Examples of items to be eliminated for consolidated financial statements include: 4. Intra-company...
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...3 Effects of Exchange Rates On International Transfer Pricing Decisions Canri Chan (E-mail: canri.chan@miis.edu), Monterey Institute of International Studies Steven P. Landry (E-mail: steve.landry@miis.edu), Monterey Institute of International Studies Terrance Jalbert (E-mail: jalbert@hawaii.edu), University of Hawaii at Hilo Abstract Events leading to the passing of the Sarbanes-Oxley Act have led to increased concern with and scrutiny of potential management manipulation of financial statements. From an agency theory perspective, managers have incentives to manipulate organizational methods and choices in order to produce financial statements that those managers believe will maximize their incentive compensation. Transfer pricing represents one possible choice that managers can manipulate. This paper investigates whether exchange rates affect transfer pricing particularly as it relates to maximizing overall corporate profitability. The effects of taxes and government regulations have been explored in considerable depth in the transfer pricing literature. However, while transfer prices should also be affected by exchange rates in predictable ways, this variable has received comparably little attention in the literature. Inclusion of exchange rates in an analysis of transfer pricing and corporate profitability presents an opportunity to add to the literature. We conducted an experiment to examine how managers set transfer prices. We found that, while individuals were influenced...
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...diversification. Complex organizational structures help achieve business objectives such as increased profitability and reduced risks. Also, these complex structures allow the company to reduce its overall tax burden. One such strategy is discussed in this paper. Transfer pricing allows the company to price the inter-company transactions. Transfer pricing simplifies the accounting of transactions that take place between affiliated or related entities. Companies have freedom in valuing inter-company transactions. But, if strategically implemented, this strategy allows the company to save taxes and retain large amount of profits. Keywords: Transfer mispricing, tax-havens, Double Irish Dutch Arrangement Transfer Pricing Transfer pricing is the methodology used to set the prices for goods sold or services provided between related entities within an enterprise. Related entities are those which are under control of a single corporation and include branches and companies that are wholly or majority owned ultimately by the parent company. Generally, such a transfer price should be equal to the price which the entity would charge to an independent customer, an arm’s length customer. Such a price is termed as an “arm’s length price” (Transfer Pricing, Wikipedia, 2015). Financial accounting does not differentiate between affiliates and treats the corporate group as a single entity. But the federal income tax law treats affiliates as separate economic actors. This allows multinational companies...
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...Transfer Pricing Kim: “I ... don’t understand why it would make sense to pay $450/ton for pulp [to buy internally from Northwestern’s U.S. pulp mills] when I can get it for $330/ton from Chile.” Ewing: “I understand your motivation for wanting to source the pulp from Chile, but it is important [to buy inside] for the corporation to act as an integrated team.” Barrett and Slape (2000: 597) Executive summary The quote above is an excerpt from a phone conversation between Bill Ewing, the Vice President of Northwestern Paper Company 1, and Arthur Kim, the Director of Northwestern’s South Korean subsidiary. This conversation rises questions on the advantages and disadvantages of utilizing internal transfer prices. Such as: given that some subsidiaries are located in lower tax jurisdictions, would it not be logical to set lower internal transfer prices to those subsidiaries? Would it not be logical to allow the Korean subsidiary to purchase from outside suppliers given that internal transfer prices are much higher than market prices in Chile? Allowing subsidiaries to outsource externally would lead to the bankruptcy of the US subsidiaries, which would not have enough demand for their products? What are the advantages and disadvantages of a reward system based on the allocation of internal consumption? Is the allocation process “fair” to each subsidiary? Is it “fair” to the company as a whole? Questions and doubts on transfer pricing probably haunt not only Mr. Ewing and the Northwestern...
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...length price. * The CUP method is the most direct way of ascertaining an arm’s length price. It involves the direct price comparison for the transaction of a similar product between independent parties. * Comparability Analysis * An uncontrolled transaction is comparable to a controlled transaction for purposes of the CUP method if one of the following conditions is met: * None of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price in the open market; or * Reasonably accurate adjustments can be made to eliminate the material effects of such differences. * An MNE using the CUP method to determine its transfer price must first identify all the differences between its product and that of the independent manufacturer. The MNE must then determine whether these differences have a material effect on the price, and adjust the price of products sold by the independent manufacturer to reflect these differences, to arrive at an arm’s length price. A comparability analysis under the CUP method should consider amongst others the following: * Product characteristics such as physical features and quality. * If the product is in the form of services, the nature and extent of such services provided. * Whether the goods sold are compared at the same points in the production chain. * Product differentiation in the form of patented features...
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...The most important concept to understand within the fire phenomena is heat transfer. Heat transfer is everywhere within the aspects of fire, such as fire development. Before the three types of heat transfer can be explained, a few more things need to be understood. Such as heat is the transfer of energy based on a temperature difference between two objects. Also that temperature is a measure of kinetic energy of the molecules in an object. Now the three types of heat transfer and first up is Conduction which is the transfer of energy in the form of heat by direct contact through excitement of molecules with driven by a temperature difference. Energy travels from a high to a low and the same thing happens with heat. When the high temperature molecules collide with the low temperature molecules, a transfer of energy occurs from the hot, more energetic molecules to the colder, less energetic molecules and this is recognized as conduction. Conduction is most prevalent in solids but it can also be found in liquids and gases. The rate at which heat is transmitted through a material by conduction depends on thermal conductivity which is a characteristic of a material and its mass. The easiest way to think of conduction is to hold a metal rod by one end and put the other over a fire. Eventually the hot energetic molecules from the fire will transfer to the cold, less energetic molecules of the metal rod and slowly creep up the rod to the cold end where it is being held and then...
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...Introduction Transfer pricing has long been an important cost management topic for transactions among domestic subsidiaries. The concern is to promote actions and behaviors that seek to maximize the corporate performance and profitability rather than the subsidiary performance. Unlike transfer pricing between two divisions of the same company, this transactions between subsidiaries cross international boundaries, involve tax issues concerning the determination, analysis and adjustment of prices between this related entities. I. Transfer price 1. Transfer price definition The transfer prices are the prices at which an enterprise transfers physical goods and intangible property or provides services to associate enterprises. They are the prices charged for any transaction between affiliates entities. This transfer may be commercial, financial or technical. According to the OECD, two companies are associated if one of the enterprises participates directly or indirectly in the governance, management, control or the capital of the other or if the same persons participate directly or indirectly to the management, control or the capital of both enterprises. They can be defined simply as transactions prices between companies of the same group and resident in different states. This type of transactions involves intra-group transactions crossing borders. Example: Within a MNE group, a subsidiary A established in France sells computers to another subsidiary B established...
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...HEAT TRANSFER Essay 1 Heat is one of many forms of energy that can be transformed into each other in accordance with the First Law of Thermodynamics. However, it is important to note that the energy contained within any substance cannot be regarded as heat. In fact, heat only exists when it is transferred between two media and then only due to a temperature difference between those media. There are many misuses of the word “heat”. It is not uncommon to describe the temperature in an oven as being 350 degrees of heat. Also, the energy contained in a medium is sometimes said to be the heat contained within that medium. These uses, as well as other misuses, are excluded by the definition: heat is energy in transit due to a temperature difference. Heat transfer is one of the most ubiquitous processes in nature. It is also commonly encountered in virtually all devices, machines, instruments, and living creatures. With such a broad range of application, heat transfer becomes a key part of the engineering knowledge base. Like most undergraduate subjects, the subject matter taught in heat transfer courses represents the academic view of the topic. That view is highly sanitized and drastically simplified compared with reality. The homework problems in the typical undergraduate course are also contrived to be solvable by use of the knowledge base that is conveyed in standard textbooks and in the classroom. Expertise in solving such problems is misleading because those problems...
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...1. Introduction Transfer Pricing is becoming highly important as soon as a multicorporate enterprise or business is structured across borders. Transfer Pricing deals with structuring international transfer prices within a multicorporate enterprise or business, in particular the evaluation of tangible and intangible assets be-tween business entities within the same multicorporate organisation or, more specifically, the price one segment (subunit, department, division and so on) of one organisation charges for a product or service supplied to an-other segment of the same organisation. Every multicorporate enterprise or business aims at minimising its tax obligations in order to maximise its overall profits. In principal, multicorporate businesses have to pay tax in their respective host countries, based on the share of their profit which arises in (or is allotted to) the respective business in such host country. These host countries can be different in various respects e.g. tax systems, customs duties, currency exchange rates, legislation and so forth. As a result, Transfer Pricing also affects revenue and customs authorities, investors, creditors and alike. The obligation to comply with national and international tax regulations regularly conflicts with the goal of a tax-efficient allocation of profits within a multi-national entities on the one hand and the respective tax legislation which is primarily nationally-focused on the other hand. Thus, an anticipatory business...
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...HEAT TRANSFER Modes of Transferring Heat Heat is always transferred when a temperature difference exists between two bodies. There are three basic modes of heat transfer: Conduction involves the transfer of heat by the interactions of atoms or molecules of a material through which the heat is being transferred. Convection involves the transfer of heat by the mixing and motion of macroscopic portions of a fluid. Radiation or radiant heat transfer, involves the transfer of heat by electromagnetic radiation that arises due to the temperature of a body. CONDUCTION Conductive Heat transfer takes place as conduction if there is a temperature gradient in a solid or fluid Conduction will take place if there exist a temperature gradient in a solid (or stationary fluid) medium. Energy is transferred from more energetic to less energetic molecules when neighboring molecules collide. Conductive heat flow occurs in direction of the decreasing temperature since higher temperatures are associated with higher molecular energy. Fourier's Law expressed conductive heat transfer as: q = k A dT / s Where q = heat transfer (W, J/s, Btu/s)A = heat transfer area (m2 , ft2)k =thermal conductivity of the material(W/m.K or W/m℃, Btu/(hroF ft2/ft))dT = temperature difference across the material (K oroC,oF)s = materialism thickness (m, ft) Example of Heat Transfer by Conduction is A plane wall constructed of solid iron with thermal conductivity 70 W/m℃, thickness 50 mm...
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...Heat transfer is a discipline of thermal engineering that concerns the generation, use, conversion, and exchange of thermal energy and heat between physical systems. As such, heat transfer is involved in almost every sector of the economy.[1] Heat transfer is classified into various mechanisms, such as thermal conduction, thermal convection, thermal radiation, and transfer of energy by phase changes. Engineers also consider the transfer of mass of differing chemical species, either cold or hot, to achieve heat transfer. While these mechanisms have distinct characteristics, they often occur simultaneously in the same system. Heat conduction, also called diffusion, is the direct microscopic exchange of kinetic energy of particles through the boundary between two systems. When an object is at a different temperature from another body or its surroundings, heat flows so that the body and the surroundings reach the same temperature, at which point they are in thermal equilibrium. Such spontaneous heat transfer always occurs from a region of high temperature to another region of lower temperature, as described by the second law of thermodynamics. Heat convection occurs when bulk flow of a fluid (gas or liquid) carries heat along with the flow of matter in the fluid. The flow of fluid may be forced by external processes, or sometimes (in gravitational fields) by buoyancy forces caused when thermal energy expands the fluid (for example in a fire plume), thus influencing its own transfer...
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...Chapter 1 INTRODUCTION The project ‘Heat Transfer Studies on a 7.5 Watt LED Lighting Load using Finite Element Analysis’ is mainly concerned with the heat generated by an LED lighting load and its dissipation to the surrounding such that the LED junction temperature is maintained low. The LED chosen for this project is 7.5 Watt, which has a maximum operating temperature of around 80°C, exceeding which the LED will fail. The LED is best operated at room temperature conditions and may be just above. The project implements a specific method of cooling or rather maintaining the LED junction temperature as low as possible by using a Thermo Electric Cooling device, more specifically known as the Peltier device. The project looks into the various methods by which a Peltier cooler can be implemented such as, with or without a fan or simply a fan would provide sufficient cooling for the LED module. A Heat sink is a necessary component which is always associated with cooling electronic components. Before getting into the depth of the project detailing we will look into the basic components that have been used in the project setup which include: a. LED Module b. Peltier Cooler c. Heat Sink d. Cooling Fan 1.1 Light Emitting Diode: Light-emitting diodes (LEDs) are small but powerful devices in terms of their diverse applications. LED lights assume greater significance in the context of need for electrical energy conservation and pollution control world over. LED is basically...
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...Simon G Simon G The window insulation always plays an important role in building design and thermal comfort, it is one of the main parts needed to be optimized in building envelop. The window insulation always plays an important role in building design and thermal comfort, it is one of the main parts needed to be optimized in building envelop. Extended Research Task Temperature Control in Homes ---- Windows Extended Research Task Temperature Control in Homes ---- Windows Temperature Control in Homes --- Windows 1. Abstract: The window insulation always plays an important role in building design and thermal comfort, it is one of the main parts needed to be optimized in building envelop. Window insulation is a basic element which can decide the insulation capacity. The large heat loss from the window is the main part of wasting energy, and simultaneously, there is also difficult to explore the new energy source and to improve the current heat generation device efficiency. Therefore, building a proper insulated window system is a good approach to keep an acceptable indoor climate as well as to reduce energy use and negative climate effects. The aim of this extended research task is to introduce readers to different ways of windows insulation that can efficiently reduce heat loss in an average household during Tasmanian winter. 2. Introduction Tasmania has cold temperature climate with four distinct seasons, with the most distinctive season during the...
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...Heat Transfer: Conduction, Convection, & Radiation 1 Heat Transfer Basics Tami L. Donnell Humanities 300, History and Methods of Science Professor Datte February 7, 2007 Heat Transfer: Conduction, Convection, & Radiation 2 Heat Transfer Basics What is Heat Transfer? Heat Transfer is the movement of energy due to a temperature difference. In my paper I will discuss Heat Transfer Basics and will address three physical mechanisms of the movement of heat. The three modes are conduction, convection, and radiation. I will offer examples of the three in hopes that you will gain a better understanding of what each one means. By the end of my essay paper you will have gain the knowledge, skills and abilities to define and understand how heat transfer occurs in our daily living. I will begin by given some small information about heat. Heat as some of you may know flows from an area of higher temperature to a region of lower temperature. Heat can also be made to flow from a cooler area to a hotter area in order to do this function; heat is controlled via a system such as a heat pump. Heat is basically made up of molecules as most anything. Molecules are constantly moving so the hotter something maybe the faster the molecules are moving. Eventually, they move at the same speed which means that any object that is hot will become cold. As mentioned previously heat moves from one object to another in three ways: conduction, convection...
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...Electron transfer reactions in coordination metal complexes. Structure-reactivity relationships Sebastitio J. Formosinho Departamento de Qui'mica, Universidade de Coimbra, 3049 Coimbra, Portugal Abstract - The current approach of Marcus theory to interpret electron transfer is questioned. Another approach based on an expansion of configuration of the transition states is presented, and the rates are estimated in terms of the following parameters: reaction energy, force constants, equilibrium bond lengths, transition state bond order and capacity to store energy. The model can interpret several anomalous features of these reactions, namely electron-exchanges where the Marcus theory estimates rates several orders of magnitude slower and faster than experiment, "cross-relations", solvent effects, the inverted region and the asymmetry of the Tafel plots of metal-aquo ions, and can assess the nonadiabatic character of some outer-sphere processes. Electron transfer reactions play an essential role in many physical, chemical and biological processes. The investigation of the mechanisms of these reactions rests essentially on the systematic investigation of structure-reactivity relationships that results from the geometric rearrangements which accompany the change in oxidation states of the coordination compounds. Although many theories have been proposed, it is no surprise that the more simpler ones such as Marcus theory are the most popular.1 In spite of the great success of the theory...
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