Exam 14: Multinational Tax Management

Poland has a corporate income tax rate that is higher than that in the United States by the amount of 40% in Poland and 35% in the U.S. This differential mean that a U.S. parent operating with a subsidiary in Poland can realize an

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

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

Which of the following factors is NOT important for U.S. corporations for determining the amount of foreign tax credit allowed for direct taxes paid on income in a foreign country?

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

TABLE 14.1 Uses the information to answer the 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 14.1. What is the minimum effective tax rate that MetroCity can achieve on its foreign-sourced income?

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

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

For U.S. MNEs, the tax-deferral privilege operating through a foreign subsidiary was not originally a tax loophole. On the contrary, it was granted by the U.S. government to allow U.S. firms to expand overseas and place them on a par with foreign competitors, that also enjoy similar types of tax deferral and export subsidies of one type or another.

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?

Depending on the host country, corporate income taxes worldwide may be as low as

________ taxes are applied to income and ________ taxes are applied to some other measurable performance characteristic of the firm.

TABLE 14.1 Uses the information to answer the 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 14.1. 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?

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 14.1. 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 parent firm wishing to transfer funds out of its subsidiary country

Domestic tax neutrality means that

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.

TABLE 14.1 Uses the information to answer the 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 14.1. 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.

Trident Germany paid 28% corporate income tax and declared dividend to its US parent. The corporate tax rate in US is 35%.

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 additional taxes paid by the U.S. domestic parent after the foreign subsidiary pays corporate and withholding taxes? 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.