Transfer Pricing; International Taxation Crain Company has a manufacturing subsidiary in Singapore that produces high-end exercise equipment for U.S. consumers. The manufacturing subsidiary has total manufacturing costs of $1,500,000, plus general and administrative expenses of $350,000. The manufacturing unit sells the equipment for $2,500,000 to the U.S. marketing subsidiary, which sells it to the final consumer for an aggregate of $3,500,000. The sales subsidiary has total marketing, general, and administrative costs of $200,000. Assume that Singapore has a corporate tax rate of 33% and that the U.S. tax rate is 46%. Assume that no tax treaties or other special tax treatments apply.
Required What is the effect on Crain Company’s total corporate-level taxes if the manufacturing subsidiary raises its price to the sales subsidiary by 20%