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Q. 17 Multiple Choice (1 Viewer)

A company reduces amount of taxpaid by tranfer pricing. What describes this practice?

  • Redirecting profits to take advantage of tax havens

    Votes: 35 36.5%
  • Buying products from a subsidiary at lowe than market prices

    Votes: 55 57.3%
  • Undercutting a competitor by selling goods at below cost price

    Votes: 2 2.1%
  • Taking advantage of currency fluctuations to buy imported raw materials

    Votes: 4 4.2%

  • Total voters
    96

zedzed

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we should complain!! write them a letter with that excerpt from your textbook. then maybe they'll take out the question.

i agree it was extremely ambiguous since i thought i knew the definition of both transfer pricing and tax havens.
 

berra

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zedzed said:
we should complain!! write them a letter with that excerpt from your textbook. then maybe they'll take out the question.

i agree it was extremely ambiguous since i thought i knew the definition of both transfer pricing and tax havens.
how bout we start a petition on this syt... and evry1 can sign it.. n den well send to BOS... n not only those ppl who did b... anyone... it will increase our chances of success

wat yall thinking?
 

XcarvengerX

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Another assumption in this question is that the company in question is in high-tax country because the company wants to reduce the amount of tax it pays (if it is in tax haven already, why it still wants to reduce its virtually nil tax), so its subsidiary (in option B) must be in tax haven for tranfer pricing and so the company would buy products from its subsidiary at HIGHER (not lower) than market prices so the profits can be transfered to its subsidiary in tax haven.
berra said:
how bout we start a petition on this syt... and evry1 can sign it.. n den well send to BOS... n not only those ppl who did b... anyone... it will increase our chances of success

wat yall thinking?
Well, other multiple choice questions are also confusing, such as the ATM and EEO ones. Every year, BOS always gives us these ambiguous questions and I believe none of these questions had ever been taken out. Correct me if I am wrong.
 
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jasonmatthew

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Yeh I agree, like that was the main one that was ambiguous. What makes me angry look at last year, the questions are like 10 times better. Honestly this is business studies not physics, not chemistry, not even economics. Its not meant to be complicated quesitons that attempt to be misleading like 17.

Whoever wrote the exam for the mc :mad1:
 
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zedzed

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but the difference with q. 17 is that option b) fit the definition of 'transfer pricing' in some business studies textbooks. technically b) is not incorrect. one could argue it is just as correct as a) depending on how you look at transfer pricing. i mean i think option b) better 'describes this practice'. option a) shows the reasons for transfer pricing rather than describing the practice. i mean 'redirecting profits' doesn't really describe the practice and 'take advantage of tax havens' shows the reasons why a company would engage in transfer pricing.

my main point is there are many discrepancies with the question and it would be unfair to include it. im so up for a petition. one mark could be the difference.
 

davidjb

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holy shit, how could so many people go B? it's A for sure, you just need to look at text book. you all know that transfer pricing means: a business with subsidairies conducts intracorporate exporting between a tax haven country and another country, and charges way above normal prices, so the one in the average tax country records low profits therefore low tax, while the other country with a tax haven would record high profits, but low tax... "redirecting profits to take advantage of tax havens.." i thought that was obvious and simple..
 

zedzed

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before i answer a 'definition' type multiple choice i always think of the answer first before looking at the answers.

this is my defintion of transfer pricing in my notes:
- the price charged for a good or service traded among a business and it's subsidiaries. subsidiaries in countries with high corporate tax rates can reduce their tax burden by charging a low price for their output to other subsidiaries.
- govts try to contain this problem through arms length pricing which is the practice of using free market price of a product to value intercompany trade.

now you can see why some people were confused by this question. that was straight out of the textbook.
 

orange_blob

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Thinking about it, and looking at wikipedia, transfer pricing is exactly as zedzed has said above:
"the price charge for a good or service traded amoung a business and it's subsidiaries"

okay?

Now the question asks how a B can reduce the amount of tax it pays through transfer pricing.

A gives an example of how this can be done through the transfer of profits to tax havens.

B, as I have just noticed, is not necessarily an example of transfer pricing - it refers to "buying products from a subsidiary" it does not say that one subsidiary is buying from another subsidiary of the same B.

So for example B could just be a phone shop in Aus buying phones from the Australian branch of Nokia at lower than market prices, which is not transfer pricing nor is it reducing the amount of tax.

Make sense?
 

zedzed

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im not stupid. it 'makes sense' but the point is it's an ambiguous question and a really stupid one to include out of all the possible questions they could've asked.

i've heard that if less than 50% (or is it 30%?) of the canditure misinterpret a multiple choice question the board is obliged to leave out that question. judging by the poll it looks like a fair amount of people went for option b). if the rumours i've heard are correct then these people including myself might still have hope.
 

karoooh

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^

Where'd you hear that from? I have never ever heard of that happening, ever. If a mulitple choice answer is wrong, then tough titties, kids - It's wrong.
 

zedzed

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well it makes sense. if that many people interpreted the question wrong then obviously the question wasn't very clear.

there must be something wrong with the question if so many people went for an option that isn't the correct answer.

screw it, next! bring on maths.
 

bobismyhomeboy

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transfer pricing is wat takes place in tax havens....generally anyway.

i chose B, the question was more asking about transfer pricing not tax havens, and yeh also because of the 'subsidary' factor. though i do agree it was a dodgy question.
 

Binky bubbles

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I said B to but when i went to my biz teacher she said a as your moving product around different country to get the benefit of cheap tax
 

guernica3

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I'm pretty sure that multiple choice theory is wrong. They have preset answers, if most of the state didn't get that it just means they were wrong. Although thats just my logic talking.

In the essence of doing multiple choice quickly I went A - thats tax havens, cross that out. So therefore put B. Working on the theory transfer pricing and tax havens were different things. But now I see how they overlap.
 

llauqs

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I think that in the end the crux is what it means by "practice"

In everything there is a 'theory' and then there is the 'practice' of that theory.

The 'theory' of transfer pricing is to redirect profits to take advantage of not neccesarily 'tax havens', but countries with less tax, yes.

The 'practice' of this - or HOW this theory is eventuated - is via option (b), although again, assumptions must be made as to who is the high tax group and who is the low tax group.

(a) does not really 'describe the practice' but rather the outcome OF the 'practice'. That is to say, by engaging in transfer pricing, profits are redirected, but profits being redirected is not the 'practice' of transfer pricing.

In sum, look at this question in terms of a 'means' to an 'end' question. The 'practice' of something implies the 'means' while the ideology/theory behind why one would implement that 'practice' is the 'ends'.

(a) is the 'end' or the ideology/theory
(b) is the 'means' or the 'practice'

Thus (b) is MOST correct answer imho
 

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