Question 1

In the Canada-U.S.tax treaty,the definition of a 'permanent establishment' does not include:

Accepted Answer

A)  a place of management 
B)  a factory 
C)  a storage facility 
D)  an office 
A)  a place of management 
B)  a factory 
C)  a storage facility 
D)  an office C

Question 2

Which of the following lists are acceptable methods that may be used in adopting a reasonable transfer price between a Canadian parent and its foreign subsidiary corporations?

Accepted Answer

A)  Comparable arm's-length selling price method; cost-plus method; resale price method 
B)  Cost-plus method; resale price method; profit-margin method 
C)  Lowest tax rate method; resale price method; comparable arm's-length selling price method 
D)  Comparable arm's-length selling price method; lowest tax rate method; profit-margin method 
A)  Comparable arm's-length selling price method; cost-plus method; resale price method 
B)  Cost-plus method; resale price method; profit-margin method 
C)  Lowest tax rate method; resale price method; comparable arm's-length selling price method 
D)  Comparable arm's-length selling price method; lowest tax rate method; profit-margin method A

Question 3

Which of the following statements is true concerning domestic expansion of a business?

Accepted Answer

A)  Cash funding requirements will be lower for a corporation than a corporate division if the expansion activity incurs start-up losses. 
B)  Cash funding requirements will be higher for a corporation than a corporate division if the expansion activity incurs start-up losses. 
C)  Obligations of a new division are separate from the parent company due to the limited liability of the division. 
D)  The main advantage of incorporating an expansion activity is the use of start-up losses against income from other divisions of the founding corporation. 
A)  Cash funding requirements will be lower for a corporation than a corporate division if the expansion activity incurs start-up losses. 
B)  Cash funding requirements will be higher for a corporation than a corporate division if the expansion activity incurs start-up losses. 
C)  Obligations of a new division are separate from the parent company due to the limited liability of the division. 
D)  The main advantage of incorporating an expansion activity is the use of start-up losses against income from other divisions of the founding corporation. B

Question 4

The Running Shoe Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a foreign branch in another country.Which of the following will not apply?

Accepted Answer

A)  The branch will be subject to branch taxes in the foreign country. 
B)  The branch profits will be included in the Canadian corporation's worldwide income. 
C)  Provided a treaty is in place with the foreign country, a foreign tax credit will reduce the Canadian taxes payable. 
D)  If the foreign country has a lower tax rate, a tax benefit will be recognized. 
A)  The branch will be subject to branch taxes in the foreign country. 
B)  The branch profits will be included in the Canadian corporation's worldwide income. 
C)  Provided a treaty is in place with the foreign country, a foreign tax credit will reduce the Canadian taxes payable. 
D)  If the foreign country has a lower tax rate, a tax benefit will be recognized.

Question 5

The Great Big Company (GBC)is a CCPC located in Saskatchewan.GBC owns a foreign subsidiary,The Little Company (TLC),which is located in a foreign country.GBC manufactures electronic component parts which are then sold to TLC for assembly.GBC is subject to a 25% corporate tax rate and TLC is subject to a 19% corporate tax rate.Fiona Big,the CEO of GBC,has mentioned that due to the lower tax rate in the foreign country,the profits of GBC could be shifted to TLC by adjusting the selling price of the component parts.
Required:
A)Can Fiona Big adjust the selling price of the component parts in order to take advantage of the lower tax rate? Why or why not?
B)What are three methods used to establish transfer prices for non-arm's length transactions?

Accepted Answer

A)Fiona cannot adjust the selling price

Question 6

The Sweater Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a foreign subsidiary corporation in another country.Which of the following is false?

Accepted Answer

A)  The subsidiary will be subject to taxes in the foreign country. 
B)  The subsidiary's profits will be included in the Canadian corporation's worldwide income. 
C)  Dividends received by the Canadian corporation from the foreign subsidiary are not included in Canadian corporate taxable income. 
D)  Dividends received by the Canadian corporation from the foreign subsidiary may be subject to a withholding tax in the foreign jurisdiction. 
A)  The subsidiary will be subject to taxes in the foreign country. 
B)  The subsidiary's profits will be included in the Canadian corporation's worldwide income. 
C)  Dividends received by the Canadian corporation from the foreign subsidiary are not included in Canadian corporate taxable income. 
D)  Dividends received by the Canadian corporation from the foreign subsidiary may be subject to a withholding tax in the foreign jurisdiction.

Question 7

Crispy Chips Inc.is considering an expansion into the United States.Jeff Arthur,the CEO,is not sure how to structure this new venture and would like some general information before he meets with his accountant and lawyer.
Required:
Write a memo to Jeff,informing him of the two fundamental approaches he can take to conduct his foreign operations (branch and subsidiary corporation); listing two advantages and two disadvantages of both approaches.

Accepted Answer

MEMO
To: Jeff Arthur,CEO,Crispy Chips In

Question 8

Andy Griffin would like to invest $150,000 in his friend Ernie's company,which was founded and operates in a foreign country.This investment would give Andy 25% ownership of the company.An annual dividend of $15,000 is anticipated.
Andy's personal marginal tax rate is 45% on regular income,28% on eligible dividends,and 35% on non-eligible dividends.Ernie's company is subject to a tax rate of 38% on all business income.Any dividends received by Andy,personally,will be subject to a 15% withholding tax.
Required:
1)Determine a)the total tax liability (foreign and Canadian)that Andy will be subject to upon receiving dividends from Ernie's company,and b)the after-tax proceeds.
2)How would your answer in part 1 change if Andy established a Canadian holding company to purchase the shares,(subject to a 5% withholding tax on dividends received)?
3)What would Andy's proceeds be if he received the dividend income from the holding company?

Accepted Answer

1.The combination of foreign and Canadia

In the Canada-U.S.tax treaty,the definition of a 'permanent establishment' does not include:

Which of the following lists are acceptable methods that may be used in adopting a reasonable transfer price between a Canadian parent and its foreign subsidiary corporations?

Which of the following statements is true concerning domestic expansion of a business?

The Running Shoe Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a foreign branch in another country.Which of the following will not apply?

The Sweater Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a foreign subsidiary corporation in another country.Which of the following is false?

Taxation-Its Role in Decision Making

Fundamentals of Tax Planning

Liability for Tax, Income Determination, and Administration of the Income Tax System

Income From Employment

Income From Business

The Acquisition, Use, and Disposal of Depreciable Property

Income From Property

Gains and Losses on the Disposition of Capital Property-Capital Gains

Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes

Individuals: Determination of Taxable Income and Taxes Payable

Corporations-An Introduction

Organization, Capital Structures, and Income Distributions of Corporations

The Canadian-Controlled Private Corporation

Multiple Corporations and Their Reorganization

Partnerships

Limited Partnerships and Joint Ventures

Trusts

Business Acquisitions and Divestitures-Assets Versus Shares

Business Acquisitions and Divestitures-Tax-Deferred Sales

Tax Aspects of Corporate Financing

Filters

Exam 20: Domestic and International Business Expansion

In the Canada-U.S.tax treaty,the definition of a 'permanent establishment' does not include:

Which of the following lists are acceptable methods that may be used in adopting a reasonable transfer price between a Canadian parent and its foreign subsidiary corporations?

Which of the following statements is true concerning domestic expansion of a business?

The Running Shoe Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a foreign branch in another country.Which of the following will not apply?

The Sweater Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a foreign subsidiary corporation in another country.Which of the following is false?

Taxation-Its Role in Decision Making

Fundamentals of Tax Planning

Liability for Tax, Income Determination, and Administration of the Income Tax System

Income From Employment

Income From Business

The Acquisition, Use, and Disposal of Depreciable Property

Income From Property

Gains and Losses on the Disposition of Capital Property-Capital Gains

Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes

Individuals: Determination of Taxable Income and Taxes Payable

Corporations-An Introduction

Organization, Capital Structures, and Income Distributions of Corporations

The Canadian-Controlled Private Corporation

Multiple Corporations and Their Reorganization

Partnerships

Limited Partnerships and Joint Ventures

Trusts

Business Acquisitions and Divestitures-Assets Versus Shares

Business Acquisitions and Divestitures-Tax-Deferred Sales

Tax Aspects of Corporate Financing

Filters