Deck 15: Multinational Tax Management

Question 1

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

Answer 1

worldwide

Question 2

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

Answer 2

$51,250

Question 3

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:

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

Answer 3

0%.

Question 4

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 5

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 6

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 7

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 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

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 16

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.

Question 17

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 18

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 19

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

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

Question 20

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 21

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 22

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 23

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 24

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

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

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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 30

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 31

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

Question 32

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

Question 33

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 34

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 35

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

Question 36

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 37

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

Question 38

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 39

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

Question 40

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

Question 41

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 42

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

Question 43

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 44

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

Question 45

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

Question 46

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.