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Task 1 Transfer Pricing IEBR
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In this document, task 1 of transfer pricing has been elaborated.
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TASK 1 – Carmen van der Werf - 545079Transaction 1: Sweet Dreams Transaction 2: Dream Maker Transaction 3: Sweet Transaction 4: Dream Sales Transaction 5: Dream Sales
Denmark (“SDD”) renders Ireland "(DMI)" performs main Dreams USA “(SWU)” Germany "(DSG)" and Dream Sales France "(DSF)" purchases
contract R&D services to production for SDN in Europe. performs main production Italy "(DSI)" purchase SDN's products from SDN for local
Sweet Dreams Netherlands and distribution for SDN in products for local distribution. distribution.
(“SDN”). the North America region.
Contractual terms SDD receives a cost plus 8% A transfer price was established SDN has an exclusive Exclusive long-term agreement. Exclusive long-term agreement.
for R&D projects that are between DMI and SDN. This was technology and trademark
considered a success. established that SDN should license agreement with Further contractual terms between A 23 percent gross margin was set
achieve a gross profit of 15 percent SDU. DSI and SDU are not known. for DSF.
Exclusive contract.
on its total sales.
SDN receives 25% of the A 20 percent gross margin was set
There is a production agreement operating profits earned by for DSG.
that includes trade secrets and SDU in royalty payment.
patents owned by SDN.
Functional analysis SDD provides R&D services to SDN outsources the actual SDN outsources the actual DSG and DSI take ownership of the DSF sells mattresses to unrelated
(including risks SDN related primarily to the production to DMI for the Europe production to SDU for the products from the moment they retailers in France in the name
assumed and assets development of mattresses. region. North America region. arrive at the airport. and on behalf of SDN.
used) SDD hires, fires and trains its
SDN purchases the raw materials The marketing costs DSG and DSI are themselves DSF has no ownership of the
R&D staff.
and enters into contracts with third incurred by SDU are at responsible for local sales, products.
SDN determines the R&D parties. SDU's own expense and execution of transportation to the
budget, evaluates the risk. end customer, and order/invoice The responsibility and risks for
progress of the R&D work DMI calls in these raw materials processing. transportation lie with SDN.
conducted by SDD at based on the contracts and SDU purchases the
predetermined milestones produces according to trade production equipment Both DSG and DSI are buy-sell SDN developed the marketing and
and decides on whether secrets, patents and specifications needed to produce the entities that develop and sales strategy for SDF.
continuing investments in a owned by SDN. mattresses itself. implement the marketing plan for
project are warranted based their local markets.
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