TRANSFER PRICING 25 revenues of the parent. Transfer pricing would be pursued only upto the point where R === C since for R — C ^> 0, the tax costs for the TNG would be the same for funds remitted through either transfer pricing or dividends. In the analysis that follows, only the exports by the parent are considered. If the corporate tax prevailing in the host country (t^) is greater than the tax rate prevailing in the home country (t^), then the argument above would only be reinforced insofar as the tax cost of dividend remittances is increased by t^—t^ while transfer pricing would mean not only a reduction in the taxable income by meeting those costs which the existing revenues could not fill, but also taxation at a lower rate of funds made available in excess of the revenue needs of meeting these costs. Dividend remittances in such a case would be restricted to the needs of declaring a minimum dividend in the host country, and the surplus funds of the subsidiary would be transferred entirely to the parent through transfer pricing. If t^;> t^, then transfer pricing would be pursued only upto the point wlierc R==C, since additional funds through this channel would imply a tax cost greater than what dividend remittances would imply, but upto this point, the tax cost of transfer pricing would be nil,9 If t^=-= t^ and r^> 0 where r^ is the ad valorem tariff on import in the host country and r, == 0, where r^ is the export duty in the parent country, and if R—G ^ 0, then it would pay to opt for transfer pricing as long as the tax savings which this i,mplies, on account of the reduction in the taxable income of the parent, resulting from the absorption of the transfer pricing funds by the parent's costs, is greater than the tariff costs of imports in the host country. Once the costs of the parent are fully met, it would be cheaper to effect a transfer through dividends, because transfer pricing can no more reduce the taxable income of the parent and would imply additional tariff costs. If t^ ^t^then, this would imply not only a tax saving in the parent country in the event of transfer pricing, but also a tax saving in the host country represented by the difference between t^ and t^, since if the firm had opted for dividend remittances it would have been taxed at the higher rate t^. Transfer pricing would be profitable as long as the combined tax savings in the home and host countries is greater than the tariff costs of imports in the host country. If i^> t^, T^> 0 and R—C==0, then dividend remittances would imply a cheaper way of transmitting funds, since the cost of such remittances at the rate t^ would be not only less than ti, which transfer pricing would invite, but the latter would mean additional tariff costs at the rate r^. If R—C < 0 and transfer pricing were pursued only to fill this gap, then it would be profitable to do so as long as the tariff costs implied in transfer pricing were less than the tax saving at the rate t^. Though transfer pricing to the extent that it meets only the difference between R and C, implies a tax saving measured at the rate