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Summary USAco, a U.S. corporation, owns 100% of MEXSub, a Mexican corporation. USAco manufactur $7.99
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Summary USAco, a U.S. corporation, owns 100% of MEXSub, a Mexican corporation. USAco manufactur
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USAcoUSAco, a U.S. corporation, owns 100% of MEXSub, a Mexican corporation. USAco manufactures telecommunications equipment and sells the equipment to an unrelated foreign distributor at a price of $750 per unit. USAco also sells the same equipment to MEXSub, which then resells that same equi...

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  • October 13, 2024
  • 3
  • 2024/2025
  • Summary

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USAco, a U.S. corporation, owns 100% of MEXSub, a Mexican corporation.

USAco manufactures telecommunications equipment and sells the equipment to

an unrelated foreign distributor at a price of $750 per unit. USAco also sells the

same equipment to MEXSub, which then resells that same equipment to

unrelated foreign customers for $850 each. The conditions of USAco's sales to

MEXSub are substantially equivalent to those of USAco's sales to the unrelated

foreign distributor




Answer & Explanation


In this scenario, we are dealing with transfer pricing, which involves setting

prices for transactions between related entities within a multinational

corporation. The key issue here is whether the price at which USAco sells to

MEXSub is consistent with the arm's length principle, which requires that

transactions between related parties be conducted as if they were unrelated

parties.


Given that USAco sells telecommunications equipment to an unrelated foreign

distributor for $750 per unit and also sells the same equipment to its subsidiary

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