Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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.

Accepted Answer

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

Question 3

The value-added tax is

Accepted Answer

A)  similar to an ad valorem tax on imports. 
B)  a form of direct taxation on corporate income. 
C)  a form of national sales tax. 
D)  none of the above. 
A)  similar to an ad valorem tax on imports. 
B)  a form of direct taxation on corporate income. 
C)  a form of national sales tax. 
D)  none of the above. C

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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

Question 6

Instruction 21.1:
Use the information to answer 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 21.1. 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 ________.

Accepted Answer

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

Question 7

General Motors 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.

Accepted Answer

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

Question 8

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 ________.

Accepted Answer

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

Question 9

TABLE 21.1
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 21.1. 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.

Accepted Answer

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

Question 10

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?

Accepted Answer

A value-added tax (VAT) is a form of nat

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

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. 
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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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

Question 15

Johnson Worldwide Aeronautics Inc., headquartered in the United States, is attempting to reduce the firm's consolidated total income taxes. The firm has just made a sale of parts to their affiliate in Lithuania, a country that has a corporate income tax rate of 15%. If the United States has a corporate income tax rate of 35%, which of the following transfer pricing strategies should Johnson attempt to follow?

Accepted Answer

A)  Comparable parts were sold to a subsidiary in the United States for $1,000,000, therefore, Johnson should price the parts for $1,000,000. 
B)  If Johnson made an individual stand-alone sale of these parts on the open market the estimated price is $1,250,000. Therefore, this should be Johnson's price. 
C)  If Johnson were to allocate full costs including overhead and a reasonable profit on the sale, they could charge a total of $1,500,000. Therefore this should be Johnson's price. 
D)  Johnson's price to its affiliate makes no difference; the consolidated income taxes will be the same regardless of the transfer pricing technique used by the firm. 
A)  Comparable parts were sold to a subsidiary in the United States for $1,000,000, therefore, Johnson should price the parts for $1,000,000. 
B)  If Johnson made an individual stand-alone sale of these parts on the open market the estimated price is $1,250,000. Therefore, this should be Johnson's price. 
C)  If Johnson were to allocate full costs including overhead and a reasonable profit on the sale, they could charge a total of $1,500,000. Therefore this should be Johnson's price. 
D)  Johnson's price to its affiliate makes no difference; the consolidated income taxes will be the same regardless of the transfer pricing technique used by the firm.

Question 16

TABLE 21.1
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 21.1. 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?

Accepted Answer

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

Question 17

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

Accepted Answer

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. 
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 18

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

Accepted Answer

A) True 
 B)False

Question 19

A foreign subsidiary has $2,000,000 of taxable income, a (foreign) corporate tax rate of 25%, and a foreign dividend withholding rate of 10%. The U.S. (domestic) parent has a corporate tax rate of 30%. What are the total taxes paid by the foreign subsidiary? Assume that the foreign subsidiary is 100% owned by the U.S. parent and that all after-tax income is paid to the U.S. parent.

Accepted Answer

A)  $0.00 
B)  $650,000 
C)  $500,000 
D)  $1,350,000 
A)  $0.00 
B)  $650,000 
C)  $500,000 
D)  $1,350,000

Question 20

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.

Accepted Answer

A) True 
 B)False

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

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.

The value-added tax is

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

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

General Motors 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.

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?

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

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

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

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

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

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

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.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Working Capital Management

Filters

Exam 21: Multinational Tax Management

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

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.

The value-added tax is

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

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

General Motors 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.

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?

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

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

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

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

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

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

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.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Working Capital Management

Filters

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