Transfer Pricing At Cameco Corporation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Transfer Pricing At Cameco Corporation Case Solution

Question 2

The financial analysts should consider the alleged case by the Canada’s revenue agency over Cameco, as such reassessment of the Cameco’s tax policies would lead to wards a heavy money pull-out by the agency. The Cameco Company would have to dispatch more amount, as a result of recurrence in the tax assessments by the Canada’s Revenue Agency.

In addition to this, in order to be effective; both sides need to be sure as the case would not go into the court until 2015 and the choice would not be made till 2016, and this strategy would act a cover for the Cameco Company.

If Cameco loses the case and the allegations made by the Canada’s Revenue Agency are proved, then the company would have to pay a total of $1.2 to $1.3 billion in tax payments, as a mean of transfer pricing punishment. The company would be required to pay higher taxes, as Cameco’s deal with its subsidiary would end in 2016. The share price of the company’s stock would drop by 11% i.e. by $2.08 per share. (See Appendix 3)

Question 3

Transfer pricing refers to the price fixing over certain expenses by the multinational companies. Alternatively, the transfer pricing may be used by the companies for internal business reasons, as there exists very strict external regulations over the manipulation of the transfer prices, which could be under-invoicing or over-invoicing. (L. Murphy Smith, 2011), explained that transfer pricing ethics are based on two perspectives, i.e. tax morals and moral ethics.

In addition, the ethicality of transfer pricing is measured through three steps, which are:

The first step leads towards the identification of benefits in transfer price manipulation by the multinational companies, which further leads to an engagement in the internal and external pressures, arising from the transfer pricing management.
The second step refers to the implication of fraud literature over the transfer pricing management, because such ethical issues have different perspectives for the multinational companies as well as the government.
The third step is to use the transfer pricing triangle (i.e. pressure, justification and opportunity), a sit would help in reducing the transfer pricing caused by the multinational companies.

Being a CEO, I would approve the transfer pricing based on the internal and the external motivations, which are described below:

Internal Motivation

Transfer pricing might not be preferred by the multinational companies, as the transfer pricing’s effect might not be much valuable or it might not have an overpowering or considerable impact. The regular accounting rehearses, for example: by and large yield valuation of elusive assets until there are safe distance exchanges or deals, making the bookkeeping report thing "generosity", which gauges the overabundance sticker price over sensible assessment of the preferences. In such cases, we don't expect moving costs. Moreover, the motivation behind using the transfer pricing includes the following factors:

Improving the company’s performance.
Leads to better management.
Improved corporate profitability.
Optimization of costs.
Tracking cash flows effectively.

External Motivation

External motivation includes motivation based on tax reductions as a result of transfer pricing management. As a Chief Executive Officer, in my opinion, the usage of transfer pricing would be a better option to increase the corporate’s profitability or the company’s after tax returns.

The factors include the taxes on trade and foreign exchange limitations to move the benefits because of the current duty rate differentials. Consequently, the internal and external variables conspire in the exchange value, which amplifies the benefits, and thus, considering it as the benefit amplifying move cost.

Question 4

The regulations presented in the case depends on the dispute between the tax payers, i.e. the Cameco’s corporation and the tax authority (Canada’s Revenue Agency). The concerns of the tax authorities are based upon:

Economic methods chose to be used by the multinational companies.
The characterization of tax payers over the value chain.

These issues can be handled through financial reporting and a proper use of transfer pricing measures, which include:

Measurement

The tax benefit should be measured in a way that it provides 50%of the realized value, which is greater than the transfer value......................

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Transfer Pricing At Cameco Corporation Harvard Case Solution & Analysis