U3db response 1 and 2

Response 1
Numerous problems arise with the use of the negotiated transfer pricing. When the negotiations drag on for too long, a company may fail to capitalize the favorable prices they may have sold their products in the market. Through concealing of information by middle managers who are in control of responsibility centers, the company may end up not benefiting fully from the intracompany trade. To avoid incidences of disagreements amongst the middle managers who are commanding the responsibility centers and facilitate quick decision-making process, the leading management must create tradeoffs and limitations for different circumstances such as how to approach issues to do with discount and the entire negotiation procedure (Stonciuviene and Uzkuraite 2015). According to Kachelmeier and Towry (2002), computerized negotiations tend to be less compelling compared to that of face to face. Negotiated transfer can be beneficial if those in charge can negotiate prices without any constraints or where the market has been subjected to an artificially induced bubble.
Response 2
The negotiation process involves sharing business information regarding the flow of cash and the local market. This aids in enhancing the effectiveness of the responsibility centers. When dialogues are happening, the middle managers involved may reach an agreement on the transfer price which may be less compared to the market price. The company managers have the responsibility to ensure that the transfer prices foster intra-company trade.

As a result, the responsibility center may be assured of numerous benefits, for example, discounts. The decision arrived at should be geared upon achieving a unified goal in line with the corporate profit. This form of pricing is advantageous if offers and responses on transfer prices are provided in good time (Stonciuviene and Uzkuraite 2015). Use of negotiation transfer price in a bid to avoid taxation may result in the company receiving a penalty. According to Grant Thornton (2018), Australia imposes up to 50% penalty rate on any tax evaded through the arrangements made under the transfer pricing.
References
BIBLIOGRAPHY l 1033 Grant Thornton. (2018). Understanding the global transfer pricing landscape. Global transfer pricing guide, 10-98. Retrieved September 4, 2018
Kachelmeier, S. J., & Towry, K. L. (2002, July). Negotiated Transfer Pricing: Is Fairness Easier Said than Done? The Accounting Review, 77(3), 571-593. Retrieved September 4, 2018
Stonciuviene, N., & Dr. Uzkuraite, S. (2015). PRINCIPLES OF TRANSFER PRICE FORMATION IN THE MULTICOMPONENT ENTERPRISES. European Scientific Journal, 67-78. Retrieved September 4, 2018