Exam 14: Multinational Tax Management

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?

The pricing of goods, services, and technology transferred to a foreign subsidiary from an affiliated company, transfer pricing, is the first and foremost method of transferring funds out of a foreign subsidiary. When engaged in transfer pricing managers must consider at least two basic factors; Fund Positioning Effect and the Income Tax Effect. Explain each of these effects.

Some countries assess extremely low corporate income tax rates on foreign source income in order to

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.

The value-added tax is

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

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 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 proven innocent" tax approach.

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 no bilateral trade agreement with the host country, what is the total amount of income taxes Rogue River Exporters will pay?

The basic idea behind withholding taxes for foreign investors is

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

A ________ tax policy is one that has no impact on private decision-making, while a ________ policy is designed to encourage specific behavior.

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 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?

The purpose of a withholding tax on dividend income is to

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.

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

Corporate income tax rates

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

Many MNEs have foreign subsidiaries that act as tax havens for corporate funds awaiting reinvestment or repatriation. Tax-haven subsidiaries, categorically referred to as International Offshore Financial Centers, are partially a result of tax-deferral features on earned foreign income allowed by some of the parent countries. Tax-haven subsidiaries are typically established in a country that can meet four basic requirements: List and define these requirements.