STUDY QUESTIONS FOR MIDTERM TEST
MGMT/IBUS 689 INTERNATIONAL TRANSFER PRICING, FALL 2010
Prof. Lorraine Eden
The test is scheduled for Monday November 1, from 2:20-3:35 pm in 186 Wehner. If there is no class in
after us, students who are not finished may continue to write until 4:00 pm.
This is a closed book exam. Please bring pens and pencils with you to the test. Everything else will be
provided (e.g., writing paper and a list of readings).
Below are seven questions. I will put four or five of them on the test and you will write on any three
questions. They are all of equal weight.
You can write in bullet points (as long as your arguments are readable and coherent ). Abbreviations are
fine (as long as I am familiar with them). To cite an article, all you need is the author name and year.
A good answer will provide a coherent, well-organized and argued analysis that references back to the
required readings and directly answers the question asked.
1. How do economists explain the MNE’s internal motivations for setting transfer prices, assuming
the absence of external motivations? What roles are played by (1) the MNE being an integrated
business, (2) lack or presence of an external market, (3) interdependencies on the demand or
supply side, (4) full or excess capacity and (5) investment decisions?
2. The managerial approach to transfer pricing argues that MNE managers face several key internal
problems/decisions in terms of setting transfer prices. (1) What are these problems/decisions?
(2) How would you recommend a prudent business manager establish its MNE’s transfer pricing
policy, assuming the absence of external motivations to manipulate transfer prices?
3. The OECD’s transfer pricing rules are built on a framework commonly referred to as the
international tax regime. (1) What are the key characteristics of the international tax regime? (2)
Briefly explain how the international tax regime applies in the United States.
4. There are three basic transactional methods for determining transfer prices for corporate
income tax purposes: comparable uncontrolled price (CUP), resale price (R-) and cost plus (C+).
List and briefly explain the key similarities and differences in the way these methods are
outlined in the US Internal Revenue Code Section 482 and the 2010 OECD Guidelines.
5. In 1986, a one line sentence was added to the Internal Revenue Code Section 482, commonly
referred to now as the Commensurate with Income (CWI) standard. That one-line sentence has
had a huge impact on the US transfer pricing regulations not only for goods, but also for
intangibles and intragroup services. True or False? Argue your case.
6. Transfer pricing professionals are split as to whether the comparable profits method (CPM)
meets the test of the arm’s length standard. (1) Summarize the arguments on both sides and
briefly note your own opinion. (2) How could CPM be improved so as silence the complaints of
professionals who believe CPM does not comply with the arm’s length standard?
7. (1) Why is the transfer pricing of intangible assets so difficult? (2) What are the key components
of the current Section 482 regulations as they apply to transfer pricing of intangible assets?