Reference no: EM131568660

Assignment Option #1: Taxable Income and International Transfer Pricing

Mama Corporation (a U.S. taxpayer) has a wholly owned sales subsidiary in the Bahamas (Bahamamama Ltd.) that purchases finished goods from its U.S. parent and sells those goods to customers throughout the Caribbean basin. In the most recent year, Bahamamama generated income of $100,000 and distributed 50% of that amount to Mama Corporation as a dividend. There are no income or withholding taxes in the Bahamas. Using this information, complete all three parts of this assignment:

Part 1: Determine the amount of income taxable in the United States, assuming that Bahamamama makes 20% of its sales in the Bahamas and 80% in other countries.

Part 2: Determine the amount of income taxable in the United States, assuming that Bahamamama makes 40% of its sales in the Bahamas and 60% in other countries.

Part 3: How do companies use international transfer pricing to minimize their tax burden? Why and how do tax authorities get involved in the transfer pricing situation?

Compile Parts 1 and 2 in a Word document and conclude with a 1-2 page analysis of Part 3 along with the appropriate calculations for Part 1 and Part 2.Support your statements with references from the text and a minimum of two additional sources formatted according to CSU-Global Guide to Writing and APA Requirements. The CSU-Global Library is a good place to locate these sources.