Deck 20: Multinational Tax Management

Question 1

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

Answer 1

value-added tax

Question 2

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 2

All are examples of a tax incentive policy.

Question 3

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

Answer 3

False

Question 4

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 ________ approach to levying taxes.

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

Question 5

TABLE 20.1
Uses the information to answer following question(s).
MetroCity 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 20.1. 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 6

TABLE 20.1
Uses the information to answer following question(s).
MetroCity 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 20.1. How much in additional U.S. taxes would be due if MetroCity 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 7

TABLE 20.1
Uses the information to answer following question(s).
MetroCity 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 20.1. If MetroCity 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 8

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 9

TABLE 20.1
Uses the information to answer following question(s).
MetroCity 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 20.1. If MetroCity set the payout rate from the Ukraine subsidiary at 25%, how should MetroCity 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 10

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 11

TABLE 20.1
Uses the information to answer following question(s).
MetroCity 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 20.1. What is the minimum effective tax rate that MetroCity can achieve on its foreign-sourced income?

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

Question 12

Jensen Optimetrics 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, Jensen should pay taxes at a rate of ________.

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

Question 13

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 14

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

Question 15

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

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

Question 16

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

Question 17

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

Question 18

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. General Motors is operating in an environment of ________ tax policy.

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

Question 19

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

Question 20

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 21

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 22

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 23

Use the information to answer the following question(s).
Rogue River 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 20.1. If the U.S. has no bilateral trade agreement with the host country, what is the total amount of income taxes Rogue River Exporters will pay?

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

Question 24

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 25

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 26

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 27

Use the information to answer the following question(s).
Rogue River 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 20.1. If the U.S. treated the taxes paid on income earned in the host country as a tax-credit, then Rogue River'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 28

Use the information to answer the following question(s).
Rogue River 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 20.1. If the U.S. treated the taxes paid on income earned in the host country as a tax-deductible expense, then Rogue River'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 29

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

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

Question 30

Tax haven subsidiaries are typically established in a country that can meet which of 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)A stable currency to permit easy conversion of funds into and out of the local currency.
C)The facilities to support financial services such as good communications, professional qualified office workers, and reputable banking services.
D)Tax haven countries have all of the above characteristics.

Question 31

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.

Question 32

Use the information to answer the following question(s).
Rogue River 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 20.1. 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 Rogue River 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 33

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

Question 34

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 35

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 36

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

Question 37

Tax haven subsidiaries of MNEs are categorically referred to as international offshore financial centers.

Question 38

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