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ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing

A multinational faces blocked remittances of dividends from a subsidiary in a country with exchange controls. Which transfer-pricing-related technique would be a legitimate way to extract cash that tax authorities would still accept?

Charging arm's length royalties and management fees for genuine services or intellectual property. These payments can extract cash despite dividend restrictions, while overpricing goods or fictitious charges would be challenged by tax authorities as non-arm's length.

  1. ACharging arm's length royalties and management fees to the subsidiaryCorrect
  2. BSetting the transfer price well above market price for goods supplied
  3. CBooking fictitious management charges not supported by services
  4. DSetting prices arbitrarily to match the dividend amount

Explanation

Royalties and management fees are accepted if they are supported by genuine services or rights and priced at arm's length. Inflated prices or fictitious charges breach transfer pricing rules and risk penalties and adjustments.

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