Question

A subsidiary, XYZ, of a large corporation, BETA Inc, provided services to the other subsidiaries of...

A subsidiary, XYZ, of a large corporation, BETA Inc, provided services to the other subsidiaries of BETA Inc. A strategy was deployed whereby XYZ'S transfer pricing of services provided was vastly inflated reducing the profits of the other subsidiaries and affected the performance bonuses of the other subsidiaries employees.

What ethical and legal issues can you identify with this practice?

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Answer #1

Ethical and legal issues

Transfer Pricing - means rules and ways for pricing transactions within and between enterprises under common control or common ownership.

In the given case , BETA inc provides services to other subsidiaries of XYZ where tha transfer pricing was vastly inflated which reduced the profits of subsidries and affected the bounses of the other subsidiaries. It is called Transfer mispricing or tranfer pricing manupulation or fraudulent transfer pricing.

As by inflating the prices of services providered is is unetihcal and legal issue because the books of subsidiaries are not showing correct and fair view.

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