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Bhp Billiton & Potashcorp: Chinese Distribution

In: Business and Management

Submitted By zaidi44
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Performance Measurement & Control | BHP Billiton & PotashCorp: Chinese distribution | Transfer Pricing | | Your Name | 1/17/2011 |

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Contents Executive Summary 3 Introduction 4 Transfer Pricing 4 Transfer Pricing: Cost rates, dual rates & market prices 7 PotashCorp Transfer Pricing policy 9 Performance Management issues 12 Conclusions 14 References 15 Appendix 16

Executive Summary
In the constantly improving transfer pricing laws of China and given the Chinese fertilizer market’s future potential, it is worth to enter the market with a BHP Billiton’s division established there. The planned imports from PotashCorp provide the possibility for the use of transfer pricing to improve tax efficiency and thus the benefit of the whole organization. If performance measurement tools are used, this may underestimate the performance of the division using most of the methods such as market price and dual cost. The cost plus method turns out to be more on the division’s side but as the Chinese prices are lower than that of the world, the conditions appear to be supporting the method as beneficial to the company as a whole while the division is able to generate revenues for company at a low tax.
Performance measurement tools seem to be less beneficial for large divisions based organization, where differences in dynamics render the largely homogeneous performance measurement indicators unable to serve the intended purpose.

Introduction
There are certain management decisions that are challenging in certain organizational structures. With a divisional structure, BHP Billiton may find it difficult to introduce the most appropriate transfer pricing method. It is a game where selecting one method might put one party at a loss while contribute towards the good of the company as a whole. It is a matter of maintaining the…...

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