Question 1

An income tax is a direct tax

Accepted Answer

A) True 
 B)False  True

Question 2

Assume that a product has the following three stages of production:   If the value-added tax (VAT)rate is 15%,what is the incremental VAT at Stage 2 of production?

Accepted Answer

A) €75 
B) €120 
C) €210 
D) €255 
A) €75 
B) €120 
C) €210 
D) €255 B

Question 3

The territorial method of declaring a national tax jurisdiction

Accepted Answer

A) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
B) is to tax all income earned within the country by any taxpayer, domestic or foreign. 
C) is to tax foreign residents of the country on their home-country income but not foreign-earned income. 
D) none of the above 
A) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
B) is to tax all income earned within the country by any taxpayer, domestic or foreign. 
C) is to tax foreign residents of the country on their home-country income but not foreign-earned income. 
D) none of the above B

Question 4

Affiliates of foreign MNCs are taxed on the income earned in the source country under

Accepted Answer

A) the territorial method of declaring a national tax jurisdiction. 
B) the source method of declaring a tax jurisdiction. 
C) all of the above 
D) none of the above 
A) the territorial method of declaring a national tax jurisdiction. 
B) the source method of declaring a tax jurisdiction. 
C) all of the above 
D) none of the above

Question 5

A transfer price

Accepted Answer

A) is the price that one division of a firm charges to another division of a firm. 
B) is an accounting issue, not a finance issue. 
C) does not involve actual cash flows, therefore does not impact the share price. 
D) none of the above 
A) is the price that one division of a firm charges to another division of a firm. 
B) is an accounting issue, not a finance issue. 
C) does not involve actual cash flows, therefore does not impact the share price. 
D) none of the above

Question 6

The foreign tax credit method followed by the United States is

Accepted Answer

A) to grant the parent firm credit against its U.S.tax liability for taxes paid to foreign tax authorities on foreign-source income. 
B) in place for the purpose of avoiding double taxation. 
C) both a) and b) 
D) none of the above 
A) to grant the parent firm credit against its U.S.tax liability for taxes paid to foreign tax authorities on foreign-source income. 
B) in place for the purpose of avoiding double taxation. 
C) both a) and b) 
D) none of the above

Question 7

Many economists prefer a VAT to an income tax because

Accepted Answer

A) these economists are pin heads with no real world experience. 
B) an income tax provides a disincentive to work, whereas a VAT is a disincentive to unnecessary consumption. 
C) an income tax is an incentive to work, whereas a VAT is a disincentive to consumption. 
D) all of the above 
A) these economists are pin heads with no real world experience. 
B) an income tax provides a disincentive to work, whereas a VAT is a disincentive to unnecessary consumption. 
C) an income tax is an incentive to work, whereas a VAT is a disincentive to consumption. 
D) all of the above

Question 8

Which of the following are true?

Accepted Answer

A) A VAT fosters national saving. 
B) An income tax is a disincentive to save because the returns from savings are taxed. 
C) National tax authorities find that a VAT is easier to collect than an income tax because tax evasion is more difficult. 
D) All of the above are true 
A) A VAT fosters national saving. 
B) An income tax is a disincentive to save because the returns from savings are taxed. 
C) National tax authorities find that a VAT is easier to collect than an income tax because tax evasion is more difficult. 
D) All of the above are true

Question 9

The undistributed income of a minority foreign subsidiary of a U.S.MNC

Accepted Answer

A) is tax deferred until it is remitted via a dividend. 
B) is taxed as imputed income. 
C) is withheld under subpart U income restrictions. 
D) none of the above 
A) is tax deferred until it is remitted via a dividend. 
B) is taxed as imputed income. 
C) is withheld under subpart U income restrictions. 
D) none of the above

Question 10

A foreign subsidiary is

Accepted Answer

A) an extension of the parent and is not an independently incorporated firm separate from the parent. 
B) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S.MNC owns at least 10 percent of the voting equity stock. 
C) either a minority foreign subsidiary (an uncontrolled foreign corporation) or a controlled foreign corporation. 
D) both b) and c) 
A) an extension of the parent and is not an independently incorporated firm separate from the parent. 
B) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S.MNC owns at least 10 percent of the voting equity stock. 
C) either a minority foreign subsidiary (an uncontrolled foreign corporation) or a controlled foreign corporation. 
D) both b) and c)

Question 11

The worldwide method of declaring a national tax jurisdiction

Accepted Answer

A) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
B) is to tax all income earned within the country by any taxpayer, domestic or foreign. 
C) is to tax national residents of the country on their domestic income but not foreign-earned income. 
D) none of the above 
A) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
B) is to tax all income earned within the country by any taxpayer, domestic or foreign. 
C) is to tax national residents of the country on their domestic income but not foreign-earned income. 
D) none of the above

Question 12

Capital export neutrality

Accepted Answer

A) is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer. 
B) requires that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned. 
C) implies that the tax burden a host country imposes on the foreign subsidiary of the MNC should be the same regardless of which country the MNC is incorporated and the same as that placed on domestic firms. 
D) none of the above 
A) is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer. 
B) requires that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned. 
C) implies that the tax burden a host country imposes on the foreign subsidiary of the MNC should be the same regardless of which country the MNC is incorporated and the same as that placed on domestic firms. 
D) none of the above

Question 13

There are three production stages required before a bicycle produced by Masi Bicicletia S.A.can be sold at retail for €3,500.The VAT rate is 15%.Find the total tax liability due.

Accepted Answer

A) €525 
B) €150 
C) €3,500 
D) None of the above 
A) €525 
B) €150 
C) €3,500 
D) None of the above

Question 14

The criteria of tax neutrality: capital export neutrality,capital import neutrality and national neutrality

Accepted Answer

A) all consistent with one another. 
B) are not always consistent with one another. 
A) all consistent with one another. 
B) are not always consistent with one another.

Question 15

A direct foreign tax credit is

Accepted Answer

A) computed for direct taxes paid on active foreign-source income of a foreign branch of a U.S.MNC. 
B) computed on the indirect withholding taxes withheld form passive income distributed by the foreign subsidiary to the U.S.parent. 
C) computed for income taxes deemed paid by the subsidiary. 
D) both a) and b) 
A) computed for direct taxes paid on active foreign-source income of a foreign branch of a U.S.MNC. 
B) computed on the indirect withholding taxes withheld form passive income distributed by the foreign subsidiary to the U.S.parent. 
C) computed for income taxes deemed paid by the subsidiary. 
D) both a) and b)

Question 16

In a given year,the U.S.IRS places an overall limitation applied to foreign tax credits.

Accepted Answer

A) The maximum tax credit is figured on world-wide foreign-source income; losses in one country can offset profits in another. 
B) Value-added taxes paid cannot be included in determining the amount of the foreign tax credit. 
C) The overall limitation is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States. 
D) All of the above 
A) The maximum tax credit is figured on world-wide foreign-source income; losses in one country can offset profits in another. 
B) Value-added taxes paid cannot be included in determining the amount of the foreign tax credit. 
C) The overall limitation is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States. 
D) All of the above

Question 17

Which statement is false?

Accepted Answer

A) Active income is defined as income that results from production by the firm or individual or from services that have been provided. 
B) Passive income includes dividends and interest income, and income from royalties, patents, or copyrights paid to the taxpayer. 
C) A withholding tax is a tax levied on passive income earned by an individual or corporation of one country within the tax jurisdiction of another country. 
D) The current marginal U.S.income tax rate is positioned towards the lower end of the rates assessed by the majority of other countries. 
A) Active income is defined as income that results from production by the firm or individual or from services that have been provided. 
B) Passive income includes dividends and interest income, and income from royalties, patents, or copyrights paid to the taxpayer. 
C) A withholding tax is a tax levied on passive income earned by an individual or corporation of one country within the tax jurisdiction of another country. 
D) The current marginal U.S.income tax rate is positioned towards the lower end of the rates assessed by the majority of other countries.

Question 18

In a given year,the U.S.IRS places an overall limitation applied to foreign tax credits.

Accepted Answer

A) The maximum tax credit is figured on world-wide foreign-source income; losses in one country can offset profits in another. 
B) The maximum tax credit is figured on foreign-source income in each country; losses in one country cannot offset profits in another. 
C) The overall limitation is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States. 
D) Both a) and c) 
A) The maximum tax credit is figured on world-wide foreign-source income; losses in one country can offset profits in another. 
B) The maximum tax credit is figured on foreign-source income in each country; losses in one country cannot offset profits in another. 
C) The overall limitation is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States. 
D) Both a) and c)

Question 19

Assume that a product has the following three stages of production:   If the value-added tax (VAT)rate is 15%,what would be the VAT over all stages of production?

Accepted Answer

A) € 90 
B) €120 
C) €465 
D) €255 
A) € 90 
B) €120 
C) €465 
D) €255

Question 20

A tax haven is

Accepted Answer

A) a country that has a low corporate income tax rate and low withholding tax rates on passive income. 
B) a country with no taxes and no enforcement of foreign tax laws within its borders. 
C) any country with a higher tax rate that available domestically. 
D) none of the above 
A) a country that has a low corporate income tax rate and low withholding tax rates on passive income. 
B) a country with no taxes and no enforcement of foreign tax laws within its borders. 
C) any country with a higher tax rate that available domestically. 
D) none of the above

Exam 21: International Tax Environment and Transfer Pricing

An income tax is a direct tax

Assume that a product has the following three stages of production: If the value-added tax (VAT)rate is 15%,what is the incremental VAT at Stage 2 of production?

The territorial method of declaring a national tax jurisdiction

Affiliates of foreign MNCs are taxed on the income earned in the source country under

A transfer price

The foreign tax credit method followed by the United States is

Many economists prefer a VAT to an income tax because

Which of the following are true?

The undistributed income of a minority foreign subsidiary of a U.S.MNC

A foreign subsidiary is

The worldwide method of declaring a national tax jurisdiction

Capital export neutrality

There are three production stages required before a bicycle produced by Masi Bicicletia S.A.can be sold at retail for €3,500.The VAT rate is 15%.Find the total tax liability due.

The criteria of tax neutrality: capital export neutrality,capital import neutrality and national neutrality

A direct foreign tax credit is

In a given year,the U.S.IRS places an overall limitation applied to foreign tax credits.

Which statement is false?

In a given year,the U.S.IRS places an overall limitation applied to foreign tax credits.

Assume that a product has the following three stages of production: If the value-added tax (VAT)rate is 15%,what would be the VAT over all stages of production?

A tax haven is

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

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