Question 1

An uncontrolled foreign corporation 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 51 percent of the voting equity stock. 
C) 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 but less than 50 percent of the voting equity stock. 
D) 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 51 percent of the voting equity stock.In addition,an uncontrolled foreign corporation is 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 but less than 50 percent of the voting equity stock. 
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 51 percent of the voting equity stock. 
C) 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 but less than 50 percent of the voting equity stock. 
D) 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 51 percent of the voting equity stock.In addition,an uncontrolled foreign corporation is 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 but less than 50 percent of the voting equity stock.

Question 2

There are three production stages required before a bicycle produced by MasiBicicletia S.A.can be sold at retail for €3,500.The VAT rate is 15 percent.Find the total tax liability due. $$\begin{array} { c c c } 
\text { Production Stage } & \text { Bellirig Price } & \text { Value Added }& \text {  Irncrernertal VAT }  \
1 & € 1,000& \
2& € 1,750& \
3 & € 3,500&
\end{array}$$

Accepted Answer

A) €525 
B) €150 
C) €3,500 
D) none of the options 
A) €525 
B) €150 
C) €3,500 
D) none of the options

Question 3

Active income is income

Accepted Answer

A) that results from production by the firm or individual (of goods or services). 
B) earned by professional athletes. 
C) that includes dividend and interest income,since the tax court has ruled that taking risk is a form of work. 
D) none of the options 
A) that results from production by the firm or individual (of goods or services). 
B) earned by professional athletes. 
C) that includes dividend and interest income,since the tax court has ruled that taking risk is a form of work. 
D) none of the options

Question 4

The typical approach to avoiding double taxation is

Accepted Answer

A) for a nation to grant the parent firm credit against its domestic tax liability for taxes paid to foreign tax authorities on foreign-source income. 
B) for a nation not to tax foreign-source income of its national residents. 
C) for a company to use both worldwide and the territorial methods. 
D) none of the options 
A) for a nation to grant the parent firm credit against its domestic tax liability for taxes paid to foreign tax authorities on foreign-source income. 
B) for a nation not to tax foreign-source income of its national residents. 
C) for a company to use both worldwide and the territorial methods. 
D) none of the options

Question 5

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 options 
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 options

Question 6

As a general rule,

Accepted Answer

A) excess tax credits can be carried back two years. 
B) excess tax credits can be carried forward five years. 
C) excess tax credits must be used in the year recognized. 
D) excess tax credits can be carried back two years and can be carried forward five years. 
A) excess tax credits can be carried back two years. 
B) excess tax credits can be carried forward five years. 
C) excess tax credits must be used in the year recognized. 
D) excess tax credits can be carried back two years and can be carried forward five years.

Question 7

Withholding tax rates imposed through tax treaties are

Accepted Answer

A) bilateral. 
B) multilateral. 
C) netted. 
D) none of the options 
A) bilateral. 
B) multilateral. 
C) netted. 
D) none of the options

Question 8

Capital import 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 options 
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 options

Question 9

When the income tax rate in the host country is greater than the tax rate in the parent country,

Accepted Answer

A) it is beneficial to follow a high markup policy on transferred goods and services from the parent to a foreign affiliate. 
B) it is beneficial to follow a low markup policy on transferred goods and services from the parent to a foreign affiliate. 
C) transfer pricing will not affect the total tax liability,net of foreign tax credit offsets. 
D) none of the options 
A) it is beneficial to follow a high markup policy on transferred goods and services from the parent to a foreign affiliate. 
B) it is beneficial to follow a low markup policy on transferred goods and services from the parent to a foreign affiliate. 
C) transfer pricing will not affect the total tax liability,net of foreign tax credit offsets. 
D) none of the options

Question 10

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 options 
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 options

Question 11

For a parent that sells goods to a subsidiary,transfer pricing can have an effect on international capital expenditure analysis.A very low markup policy makes the APV of a subsidiary's capital expenditure appear

Accepted Answer

A) more attractive. 
B) less attractive. 
C) no impact. 
D) none of the options 
A) more attractive. 
B) less attractive. 
C) no impact. 
D) none of the options

Question 12

The two main objectives of taxation are

Accepted Answer

A) tax neutrality and tax equity. 
B) complexity and revenue. 
C) social engineering and tax equity. 
D) progressive taxation and tax neutrality. 
A) tax neutrality and tax equity. 
B) complexity and revenue. 
C) social engineering and tax equity. 
D) progressive taxation and tax neutrality.

Question 13

A withholding tax is defined in your textbook as

Accepted Answer

A) the money that the government takes for every worker's paycheck. 
B) social security taxes. 
C) a tax levied on income earned by an individual (or corporation)of one country within the tax jurisdiction of another county. 
D) a tax levied on passive income earned by an individual (or corporation)of one country within the tax jurisdiction of another county. 
A) the money that the government takes for every worker's paycheck. 
B) social security taxes. 
C) a tax levied on income earned by an individual (or corporation)of one country within the tax jurisdiction of another county. 
D) a tax levied on passive income earned by an individual (or corporation)of one country within the tax jurisdiction of another county.

Question 14

Transfer pricing can have an effect on share value

Accepted Answer

A) to the extent that financial markets are inefficient. 
B) to the extent that security analysts do not understand the transfer pricing strategy being used. 
C) to the extent that third parties benefit from the transfer price. 
D) to the extent that financial markets are inefficient,as well as to the extent that security analysts do not understand the transfer pricing strategy being used. 
A) to the extent that financial markets are inefficient. 
B) to the extent that security analysts do not understand the transfer pricing strategy being used. 
C) to the extent that third parties benefit from the transfer price. 
D) to the extent that financial markets are inefficient,as well as to the extent that security analysts do not understand the transfer pricing strategy being used.

Question 15

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

Accepted Answer

A) The overall limitation is limited to the amount of tax due on the foreign-source income. 
B) The overall limitation is limited to the amount of tax actually paid during the tax year on the foreign-source income. 
C) The overall limitation is limited to the amount of tax that would have been due on the foreign-source income if it had been earned in the United States. 
D) none of the options 
A) The overall limitation is limited to the amount of tax due on the foreign-source income. 
B) The overall limitation is limited to the amount of tax actually paid during the tax year on the foreign-source income. 
C) The overall limitation is limited to the amount of tax that would have been due on the foreign-source income if it had been earned in the United States. 
D) none of the options

Question 16

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 options 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 options are true.

Question 17

A value-added tax (VAT)is ________ national tax levied on the value added in the production of a good (or service)as it moves through the various stages of production.

Accepted Answer

A) a direct 
B) an indirect 
C) a sales tax 
D) none of the options 
A) a direct 
B) an indirect 
C) a sales tax 
D) none of the options

Question 18

The worldwide method of declaring a national tax jurisdiction

Accepted Answer

A) is also known as the residential method. 
B) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
C) is different from the territorial method of declaring a national tax jurisdiction. 
D) all of the options 
A) is also known as the residential method. 
B) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
C) is different from the territorial method of declaring a national tax jurisdiction. 
D) all of the options

Question 19

An income tax is a direct tax.

Accepted Answer

A) True 
 B)False

Question 20

Implementing capital import neutrality means that

Accepted Answer

A) a sovereign government follows the taxation policies of foreign tax authorities on the foreign-source income of its resident MNCs. 
B) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same regardless of the country in which the MNC is incorporated. 
C) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same as that placed on domestic firms. 
D) all of the options 
A) a sovereign government follows the taxation policies of foreign tax authorities on the foreign-source income of its resident MNCs. 
B) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same regardless of the country in which the MNC is incorporated. 
C) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same as that placed on domestic firms. 
D) all of the options

Exam 21: International Tax Environment and Transfer Pricing

An uncontrolled foreign corporation is

There are three production stages required before a bicycle produced by MasiBicicletia S.A.can be sold at retail for €3,500.The VAT rate is 15 percent.Find the total tax liability due. Production Stage Bellirig Price Value Added Irncrernertal VAT 1 1,000 2 1,750 3 3,500

Active income is income

The typical approach to avoiding double taxation is

Many economists prefer a VAT to an income tax because

As a general rule,

Withholding tax rates imposed through tax treaties are

Capital import neutrality

When the income tax rate in the host country is greater than the tax rate in the parent country,

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

For a parent that sells goods to a subsidiary,transfer pricing can have an effect on international capital expenditure analysis.A very low markup policy makes the APV of a subsidiary's capital expenditure appear

The two main objectives of taxation are

A withholding tax is defined in your textbook as

Transfer pricing can have an effect on share value

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

Which of the following are true?

A value-added tax (VAT)is ________ national tax levied on the value added in the production of a good (or service)as it moves through the various stages of production.

The worldwide method of declaring a national tax jurisdiction

An income tax is a direct tax.

Implementing capital import neutrality means that

International Monetary System

Globalization and the Multinational Firm

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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