Deck 15: Multinational Tax Management

Question 1

Which of the following is NOT an example of a tax incentive policy?

A)The federal government gives a tax credit to MNEs that make domestic capital improvements but not foreign capital improvements.
B)Corporations are allowed to take a direct tax credit for each dollar of matching donations they make to institutions of higher education.
C)A tax law is passed that makes interest on property non tax-deductible,but interest payments on durable goods are.
D)All are examples of a tax incentive policy.

Answer 1

All are examples of a tax incentive policy.

Question 2

What is the total value of taxes paid in the following example if the value added tax is 10%? A farmer raises wheat that he sells for $1.50 to the grain company.The grain company sells to the processor for $2.00 per bushel.The processor turns the wheat into a breakfast cereal and wholesales it for $3.00 per bushel.The retailer sells the cereal for $4.00 per bushel.

A)$0.15
B)$0.20
C)$0.30
D)$0.40

Answer 2

$0.40

Question 3

In the mid 1980s the U.S.led the way to higher corporate income tax rates worldwide.Today,most of the G7 nations have surpassed the U.S.and have higher corporate income tax rates than the U.S.

Answer 3

False

Question 4

Tax treaties typically result in ________ between the two countries in question.

A)lower property taxes for U.S.citizens overseas
B)elimination of differential tax rates
C)increased double taxation
D)reduced withholding tax rates

Question 5

A tax that is a form of social redistribution of income is defined as a/an ________ tax.

A)un-American
B)transfer
C)flat
D)none of the above

Question 6

Which of the following is an unlikely objective of U.S.government policy for the taxation of foreign MNEs?

A)to raise revenues
B)to provide an incentive for U.S.private investment in developing countries
C)to improve the U.S.balance of payments
D)All of the above are objectives.

Question 7

The issue of ethics in the reporting of income and the payment of taxes is a considerable one.The authors state that most MNEs operating in foreign countries tend to follow the general principle of:

A)"when in Rome,do as the Romans do."
B)full disclosure to the tax authorities.
C)maintain a competitive playing field by cheating as much as the local competition,no more,no less.
D)none of the above

Question 8

A country CANNOT have both a territorial and a worldwide approach as a national tax policy.

Question 9

Toyota Motor Company operates in many different countries and pays taxes at many different rates.However,they always pay the same rate as their local competitors.Toyota Motor Company is operating in an environment of ________ tax policy.

A)domestic neutrality
B)foreign neutrality
C)territorial approach
D)none of the above

Question 10

Tax treaties generally have the effect of increasing the withholding taxes between the countries that are negotiating the treaties.

Question 11

All indications are that the value-added tax will soon be the dominant form of taxation in the U.S.

Question 12

The territorial approach to taxation policy is also termed the ________ approach.

A)source
B)ethical
C)greedy
D)location

Question 13

The primary objective of multinational tax planning is to minimize the firm's worldwide tax burden.

Question 14

Among the G7 nations,the U.S.has a below average corporate income tax rate that makes it attractive for other countries to invest in the U.S.

Question 15

A ________ tax policy is one that has no impact on private decision-making,while a ________ policy is designed to encourage specific behavior.

A)flat;tax incentive
B)neutral;flat
C)neutral;tax incentive
D)none of the above

Question 16

The United States taxes the domestic and remitted foreign earnings of U.S.based MNEs no matter where the earnings occurred.This is an example of a/an ________ approach to levying taxes.

A)worldwide
B)territorial
C)neutral
D)equitable

Question 17

A value-added tax has gained widespread usage in Western Europe,Canada,and parts of Latin America.

Question 18

The United States taxes all earnings on U.S.soil by both domestic and foreign firms.This is an example of a ________ approach to levying taxes.

A)worldwide
B)neutral
C)territorial
D)none of the above

Question 19

A tax that is effectively a sales tax at each stage of production is defined as a/an ________ tax.

A)flat
B)equitable
C)value-added tax
D)none of the above

Question 20

Bacon Signs Inc.is based in a country with a territorial approach to taxation but generates 100% of its income in a country with a worldwide approach to taxation.The tax rate in the country of incorporation is 25%,and the tax rate in the country where they earn their income is 50%.In theory,and barring any special provisions in the tax codes of either country,Bacon should pay taxes at a rate of ________ in the country of incorporation.

A)75%.
B)62.5%.
C)0%.
D)50%.

Question 21

Instruction 15.1:
Use the information to answer the following question(s).
Green Valley Exporters USA has $100,000 of before tax foreign income.The host country has a corporate income tax rate of 25% and the U.S.has a corporate income tax rate of 35%.
Refer to Instruction 15.1.If the U.S.treated the taxes paid on income earned in the host country as a tax-credit,then Green Valley's total U.S.corporate tax on the foreign earnings would be:

A)$51,250.
B)$35,000.
C)$26,250.
D)$10,000.

Question 22

Transfer pricing is a strategy that may be used by MNEs to:

A)reduce consolidated corporate income taxes.
B)partially finance a subsidiary in another country.
C)transfer funds from a subsidiary to the parent corporation.
D)all of the above

Question 23

Instruction 15.1:
Use the information to answer the following question(s).
Green Valley Exporters USA has $100,000 of before tax foreign income.The host country has a corporate income tax rate of 25% and the U.S.has a corporate income tax rate of 35%.
Refer to Instruction 15.1.If the U.S.treated the taxes paid on income earned in the host country as a tax-deductible expense,then Green Valley's total U.S.corporate tax on the foreign earnings would be:

A)$10,000.
B)$26,250.
C)$35,000.
D)$51,250.

Question 24

Instruction 15.1:
Use the information to answer the following question(s).
Green Valley Exporters USA has $100,000 of before tax foreign income.The host country has a corporate income tax rate of 25% and the U.S.has a corporate income tax rate of 35%.
Refer to Instruction 15.1.If the U.S.has no bilateral trade agreement with the host country,what is the total amount of income taxes Green Valley Exporters will pay?

A)$25,000
B)$35,000
C)$51,250
D)$60,000

Question 25

What is a value-added tax? Where is this type of tax in wide usage? Why do you suppose this form of taxation has NOT been widely accepted in the United States?

Question 26

TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc. ,located in Northern California,has two international subsidiaries,one located in the Ukraine,the other in Korea.Consider the information below to answer the next several questions.

Refer to Table 15.1.If BayArea pays out 50% of its earnings from each subsidiary,what are the additional U.S.taxes due on the foreign sourced income from the Ukraine and Korea respectively.

A)Ukraine = $0;Korea = ($30,000)
B)Ukraine = $100,000;Korea = $0
C)Ukraine = $0;Korea = $66,250
D)none of the above

Question 27

Tax treaties typically result in reduced withholding tax rates between the two signatory countries.

Question 28

The worldwide approach,also referred to as the residential or national approach to tax policy,levies taxes on the income earned by firms that are incorporated in the host country,regardless of where the income was earned (domestically or abroad).

Question 29

The territorial approach,also referred to as the source approach to tax policy,levies taxes on the income earned by firms that are incorporated in the host country,regardless of where the income was earned (domestically or abroad).

Question 30

A ________ is a direct reduction of taxes whereas a ________ reduces the taxable income before taxes.

A)foreign tax credit;domestic tax credit
B)tax deduction;tax credit
C)tax credit;tax deduction
D)none of the above

Question 31

Between 2006 - 2012,global corporate tax rates have trended upward.

Question 32

TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc. ,located in Northern California,has two international subsidiaries,one located in the Ukraine,the other in Korea.Consider the information below to answer the next several questions.

Refer to Table 15.1.What is the minimum effective tax rate that BayArea can achieve on its foreign-sourced income?

A)26%
B)35%
C)40%
D)0%

Question 33

TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc. ,located in Northern California,has two international subsidiaries,one located in the Ukraine,the other in Korea.Consider the information below to answer the next several questions.

Refer to Table 15.1.If BayArea set the payout rate from the Ukraine subsidiary at 25%,how should BayArea set the payout rate of the Korean subsidiary (approximately)to more efficiently manage its total foreign tax bill?

A)28.5%
B)24.5%
C)42.6%
D)82.3%

Question 34

TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc. ,located in Northern California,has two international subsidiaries,one located in the Ukraine,the other in Korea.Consider the information below to answer the next several questions.

Refer to Table 15.1.The additional U.S.taxes due on the repatriation of income from the Ukraine to the United States,alone,assuming a 50% payout rate,is:

A)excess foreign tax credits of $110,000.
B)additional U.S.taxes due of $97,000.
C)additional U.S.taxes due of $36,500.
D)excess foreign tax credits of $18,500.

Question 35

Instruction 15.1:
Use the information to answer the following question(s).
Green Valley Exporters USA has $100,000 of before tax foreign income.The host country has a corporate income tax rate of 25% and the U.S.has a corporate income tax rate of 35%.
Refer to Instruction 15.1.If the U.S.has a bilateral trade agreement with the host country that calls for the total tax paid to be equal to the maximum amount that could be paid in the highest taxing country,what is the total amount of income taxes Green Valley Exporters will pay to the host country,and how much will they pay in U.S income taxes on the foreign earned income?

A)$25,000;$10,000
B)$25,000;$26,250
C)$35,000;$0
D)none of the above

Question 36

Of the OECD 30 countries,most employ a worldwide approach to tax policy,but a few,including the United States,use the worldwide approach.

Question 37

FEW governments rely on income taxes,both personal and corporate,for their primary revenue source.

Question 38

The ideal tax should not only raise revenue efficiently but also have as few negative effects on economic behavior as possible.

Question 39

Explain the worldwide and territorial approaches of national taxation.The authors state that the United States uses both approaches.How can this be? Give an example of each taxation approach.

Question 40

TABLE 15.1
Use the information to answer following question(s).
BayArea Designs Inc. ,located in Northern California,has two international subsidiaries,one located in the Ukraine,the other in Korea.Consider the information below to answer the next several questions.

Refer to Table 15.1.How much in additional U.S.taxes would be due if BayArea averaged the tax credits and liabilities of the two foreign units,assuming a 50% payout rate from each?

A)$3,750
B)$13,750
C)$2,500
D)$0

Question 41

Tax-haven subsidiaries are typically established in a country that can meet the following requirements:

A)a low tax on foreign investment or sales income earned by resident corporations and a low dividend withholding tax on dividends paid to the parent firm.
B)the facilities to support financial services,for example,good communications,professional qualified office workers,and reputable banking services.
C)a stable government that encourages the establishment of foreign-owned financial and service facilities within its borders.
D)all of the above

Question 42

Tax credits are less valuable on a dollar-for-dollar basis than are tax-deductible expenses.

Question 43

Finance ministers of the G20 in conjunction with the OECD created an action plan to stop basis erosion and profit shifting (BEPS)in an effort to stop illegal activity.

Question 44

What is a transfer price,and can a government regulate it? What difficulties and motives does a parent multinational firm face in setting transfer prices?

Question 45

In a typical naked corporate inversion transaction the corporation's effective global tax liability is reduced but the effective control does not change.

Question 46

The U.S.Internal Revenue Service can reallocate revenues and expenses between parent corporations and their subsidiaries to more clearly reflect a proper allocation of income.In such instances it is the responsibility of the corporation to prove that the IRS has been arbitrary in its decision-making,thus establishing a "guilty until proved innocent" tax approach.

Question 47

Of the following,which is NOT cited by the authors as an example of tax haven?

A)Ireland
B)Bermuda
C)Cayman Islands
D)Bahamas

Question 48

One case of inversion is when a U.S.company is merged with a large foreign firm and the new combined entity is incorporated in the foreign country.The added stipulation to be a valid inversion is that the previous U.S.ownership must have a position of less than 80% ownership in the new combined entity.

Question 49

________ is the pricing of goods,services,and technology between related companies.

A)Among pricing
B)Retail pricing
C)Transfer pricing
D)Wholesale pricing

Question 50

The rapid evolution of corporate inversions for U.S.-based multinationals over the past 20 years has been attributed to all of the following EXCEPT:

A)lack of foreign tax credits
B)relatively high U.S.corporate tax rate
C)U.S.lack of global competitiveness
D)the worldwide tax principles

Question 51

When a firm is organized with decentralized profit centers,transfer pricing between centers can help in the evaluation of each subsidiary performance.

Question 52

Why do the U.S.tax authorities tax passive income generated offshore differently from active income?

Question 53

Tax-haven subsidiaries are typically established in a country that can meet the following requirements:

A)a low tax on foreign investment or sales income earned by resident corporations and a low dividend withholding tax on dividends paid to the parent firm.
B)the facilities to support financial services,for example,good communications,professional qualified office workers,and reputable banking services.
C)a stable government that encourages the establishment of foreign-owned financial and service facilities within its borders.
D)all of the above

Question 54

The 80% rule added in the American Jobs Creation Act (AJCA)of 2004 makes less likely that the former parent company would continue to be treated as domestic.

Question 55

If a U.S.multinational remits profits from two different countries (subsidiaries)back to the parent company (U.S. ),the excess foreign tax credit from one subsidiary can only be cross-credited against another subsidiary from the same country.