Caribbean Brewers

3163 Words Dec 25th, 2012 13 Pages
ISSN 1940-204X

Caribbean Brewers: Transfer Pricing, Ethics and Governance
Douglas Kalesnikoff University of Saskatchewan Suresh Kalagnanam University of Saskatchewan

INTRODUCTION
It is April 2011 and you have used your newly acquired business degree to secure a management job as advisor to the chief financial officer with Caribbean Brewers Inc., located in Antigua in the Caribbean Sea. Caribbean Brewers Inc. is a 75%-owned subsidiary of Gera International, a conglomerate in the business of brewing and distributing beer. It is barely a week since you started your job and you already have major projects to deal with.

GERA INTERNATIONAL
Gera beer has been a well-established international brand of beer for over half a century,
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Antigua already had a successful brewery that produced Tigua beer, a popular brand in Antigua and throughout the eastern Caribbean. In 2000, the Antiguan brewery had negotiated a 15-year income tax holiday with the government of Antigua on income earned from sales of Tigua beer. The combination of the central location of Antigua in the eastern Caribbean, the success of the Tigua beer line, and the tax concession on Tigua beer made Antigua a good choice for Gera International; it purchased 75% of the Antiguan brewery, Caribbean Brewers Inc., in 2005. The remaining 25% of the common shares of Caribbean Brewers remained held by senior management and other employees. Caribbean Brewers is one of the many subsidiaries of varying sizes under Gera International’s control. The production facilities of Caribbean Brewers were expanded in 2008, thereby effectively doubling the productive capacity. This expansion was funded through a 10-year amortized loan from Gera International at a fixed interest rate of 10%. All of the production of Gera beer for the eastern Caribbean region was transferred to Caribbean Brewers after the plant expansion. The resulting production figures for Caribbean Brewers are provided in Figure 1.

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VOL. 5, N O. 2, ART. 1, JUN E 2012

RECENT ISSUES
Upon arrival in your new position, you discover that all is not rosy at Caribbean Brewers. On only your second day in the office,

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