Derwent Ltd: Optimising Transfer Pricing for Global Tax Minimisation

This case study provides a detailed analysis of Derwent Ltd's transfer pricing strategies in a multinational context, focusing on global tax minimization. Scenario 1a examines the impact of transfer pricing on the Austrian and U.S. divisions, considering full manufacturing costs versus market prices, and concludes that setting the transfer price at full manufacturing cost minimizes import duty and income tax expenses. Scenario 1b explores options for selling product B12 in Australia versus the U.S., determining that selling in the U.S. yields higher net income, but also discusses the potential conflict with divisional manager autonomy if transfer prices are not beneficial to all divisions. It also calculates the minimum transfer price for the Australian division. Scenario 2 addresses price discrimination for Eastcoast Airways, recommending a pricing strategy that charges business class customers $1350 and offers a $750 discount to pleasure class customers who stay on Saturday night, effectively charging them $600, thereby maximizing overall contribution margin. This analysis highlights the importance of strategic transfer pricing and price discrimination in optimizing profitability and minimizing tax burdens for multinational corporations. Desklib offers a wealth of resources, including similar solved assignments and past papers, to aid students in mastering these complex financial concepts.