Compagnie Du Froid and Transfer Pricing

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Compagnie Du Froid
Transfer pricing is an essential element for multinationals, especially in the current era of globalization. It allows multinationals to improve operations, while at the same time ensuring tax compliance and reducing the risks of incurring costly penalties. It is the price a multinational charges its division or subsidiary in another country for goods and services delivered (Brickley et al., 551). Transfer prices are founded on market rates or holding company for services provided. However, to reduce the tax load of the parent corporation, many establishments have adopted inter-company transfer pricing such as variable cost, full cost and profit margin, as well as market prices.
Over the years, transfer pricing has been a contentious debate among economists. In the case of Compagnie Du Froid, Andres – CEO for the Spanish company division, decides to import products from the France division to cover up product shortages caused by machines breakdown. To his surprise, the French division CEO, Jacques charged a transfer price of full cost and 5% profit margin –a move Andres is not happy with (Simons et al., 4).
Transfer price should not be less than production costs, plus the costs of moving the product or service. Typically, when an organisation transfers a product or service to a division, the division lo...