Skip to content

ACCA Strategic Professional · Advanced Financial Management · The role and responsibility of senior financial executive/advisor

A multinational sets its transfer price between a high-tax subsidiary and a low-tax subsidiary far above arm's-length value solely to shift profits to the low-tax country. What is the principal ethical and compliance concern for the senior financial adviser?

The main concern is that pricing away from arm's length value solely to shift profit breaches transfer pricing rules and may be viewed as tax avoidance or evasion. It exposes the group to adjustments, penalties, double taxation and reputational damage, regardless of shareholder approval.

  1. AIt breaches the arm's length principle and may be treated as tax avoidance or evasion, risking penalties, double taxation and reputational damageCorrect
  2. BIt reduces the group's exposure to exchange rate movements
  3. CIt increases group consolidated profit before tax
  4. DIt is acceptable provided the parent's shareholders approve

Explanation

Tax authorities apply the arm's length principle, and artificial pricing to shift profit can lead to adjustments, penalties, double taxation and reputational harm. Intra-group pricing does not change consolidated pre-tax profit because the transactions eliminate on consolidation. Shareholder approval cannot legitimise non-compliance.

Did you get it right without looking?

One question tells you little. A timed set on The role and responsibility of senior financial executive/advisor shows your real accuracy, how long you take and where you lose marks.

Practise The role and responsibility of senior financial executive/advisorFree diagnostic mock

More The role and responsibility of senior financial executive/advisor questions