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

A multinational's treasury manager is considering transferring profit to a low-tax subsidiary by setting an intra-group transfer price of 140 per unit where the arm's-length price is 100. Which statement best reflects the ethical and professional position?

It is unacceptable. Setting a transfer price well above the arm's-length price purely to shift profit to a low-tax jurisdiction risks breaching tax rules and the integrity principle, and deprives host governments of revenue. Internal agreement or internal disclosure does not make it legitimate.

  1. AAcceptable, because tax minimisation is always the primary duty to shareholders
  2. BAcceptable provided the subsidiary's directors agree
  3. CUnacceptable as a price deviating from arm's length purely to shift profit risks breaching tax rules and the principle of integrity, and harms the host governments' revenueCorrect
  4. DAcceptable if the price is disclosed only in internal management reports

Explanation

Transfer prices departing from arm's-length levels purely to shift profits contravene tax regulations (OECD principles) and integrity. Shareholder interest does not override legal and ethical compliance, and agreement of subsidiary directors or internal disclosure does not cure the problem.

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