AMMAR TEXTILES: THE TRANSFER PRICING PROBLEM

Abstract

Pakistan’s leading knitwear producer is faced with determining the transfer price for fabric sent from its home factory to a new garment facility in Muscat. The Muscat facility was planned to overcome growth constraints at home. The realization of a major tax impact on the new facility heightens the need for reaching agreement on some transfer price. The interests and authorities of the governments of Muscat and Pakistan, the managers of the two facilities, and the owner-manager of Ammar Textiles spark a management debate on the issue. Apart from the specific decision at hand, the case explores the state of management control systems in growing firms facing strategic decisions such as overseas expansion. The case is intended for graduate level use in a Management Control System course.