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Answer (D) is correct . A transfer price is the price charged by one subunit of a firm to another. When the subsidiary-buyer is in a foreign country, the higher the transfer, the higher the potential tariffs. However, the tax levied on a subsequent sale by the subsidiary will be lower because of its higher acquisition cost.

Answer (A) is incorrect because An arm’s-length price is what a competitor would charge in that market.
Answer (B) is incorrect because A cost-plus price does not necessarily trigger higher import duties.
Answer (C) is incorrect because If the transfer price is too low, import duties would be lower and taxes would be higher.