Exam 15: Multinational Tax Management

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?

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.

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.

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

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

As part of the Act of 2017, the taxation of Foreign-Source Income will not create tax credits or deficits when declared as dividends to the U.S. parent.

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

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 15.2. 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:

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

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

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).

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.

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

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.

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.

Maximizing local profits in joint ventures overseas could be suboptimal from the overall view of the MNE.

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?

Governments worldwide compete for global investment on all of the following grounds EXCEPT:

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.

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