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Read each statement. Then select the most appropriate category and determine if each item is an advantage for the parent company or a concern for the local firm.

Choose one of the following for answer for each statement:.

1. Dividend remittances advantages for parent/subsidiary
2. Dividend remittances local subsidiary/ owner concern
3. Royalty Payments and Fees advantages for parent/subsidiary
4. Royalty Payments and Fees local subsidiary/ owner concern
5. Transfer Pricing advantages for parent/subsidiary
6. Transfer Pricing local subsidiary/ owner concern

1. Common method of transfer to parent Individual subsidiaries policies vary, but this is the most common method by which subsidiaries transfer to parent companies.
2. Benefit could be lost Tax benefits could be lost if the subsidiarys combined tax rate is higher than the parents.
3. Distortion Can create artificially high costs for local unit, which may not be recouped by local owners as they do not share the parent companys tax liability.
4. Not an arms-length transaction Firms can use to circumvent tax regulations by increasing pre-tax costs.
5. Recognize demands for local owners Local equity participation must be recognized. Needs of both unit and local owners.
6. Often tax deductible locally Payments may be tax-deductible locally, which will reduce the subsidiary tax burden.

Note: Please one statement per answer. I did posted this question and the answers given were mixed and wrong.

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