Question 1

Under the territorial method of declaring a national tax jurisdiction

Accepted Answer

A) the possibility of double taxation exists if the parent county of a foreign affiliate also levies a tax on worldwide income. 
B) tax is levied on all income earned within the country by any taxpayer, domestic or foreign. 
C) tax is levied on foreign residents of the country on their home-country income but not foreign-earned income. 
D) none of the above 
A) the possibility of double taxation exists if the parent county of a foreign affiliate also levies a tax on worldwide income. 
B) tax is levied on all income earned within the country by any taxpayer, domestic or foreign. 
C) tax is levied on foreign residents of the country on their home-country income but not foreign-earned income. 
D) none of the above A

Question 2

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) both a and b 
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) both a and b D

Question 3

The United States withholds ___ of passive income from taxpayers that reside in countries with which it does not have withholding tax treaties.

Accepted Answer

A) 10% 
B) 20% 
C) 30% 
D) 40% 
E) 50% 
A) 10% 
B) 20% 
C) 30% 
D) 40% 
E) 50% C

Question 4

The U.S. IRS allows transfer prices to be set using

Accepted Answer

A) comparable uncontrolled price method. 
B) resale price method. 
C) cost plus approach. 
D) all of the above 
A) comparable uncontrolled price method. 
B) resale price method. 
C) cost plus approach. 
D) all of the above

Question 5

The three basic types of taxation are

Accepted Answer

A) income tax, withholding tax, and value-added tax. 
B) income tax, withholding tax, and business tax. 
C) withholding tax, value-added tax, and corporate tax. 
D) personal tax, corporate tax, and operating tax. 
A) income tax, withholding tax, and value-added tax. 
B) income tax, withholding tax, and business tax. 
C) withholding tax, value-added tax, and corporate tax. 
D) personal tax, corporate tax, and operating tax.

Question 6

A withholding tax is

Accepted Answer

A) an indirect tax. 
B) a direct tax. 
A) an indirect tax. 
B) a direct tax.

Question 7

Tax equity means that

Accepted Answer

A) similarly situated taxpayers should participate in the cost of operating the government according to the same rules. 
B) regardless of the country in which an affiliate of a MNC earns taxable income, the same tax rate and tax due date apply. 
C) a dollar earned by a foreign affiliate is taxed under the same rules as a dollar earned by a domestic affiliate of the MNC. 
D) all of the above 
A) similarly situated taxpayers should participate in the cost of operating the government according to the same rules. 
B) regardless of the country in which an affiliate of a MNC earns taxable income, the same tax rate and tax due date apply. 
C) a dollar earned by a foreign affiliate is taxed under the same rules as a dollar earned by a domestic affiliate of the MNC. 
D) all of the above

Question 8

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 9

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 10

The higher the transfer price

Accepted Answer

A) the higher the net profit reported by the MNC. 
B) the higher the gross profit of the receiving division relative to the transferring division. 
C) the higher the gross profit of the transferring division relative to the receiving division. 
D) none of the above 
A) the higher the net profit reported by the MNC. 
B) the higher the gross profit of the receiving division relative to the transferring division. 
C) the higher the gross profit of the transferring division relative to the receiving division. 
D) none of the above

Question 11

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

Question 12

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 above 
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 above

Question 13

A "tax haven" country is one that has a low, or zero percent, national tax rates. Some of the countries that fall into this category are

Accepted Answer

A) Bahamas, Bahrain, Bermuda, and the Cayman Islands. 
B) Denmark, Norway, Switzerland, and Sweden. 
C) Bulgaria, Canada, Saudi Arabia, and South Africa. 
D) Congo, Egypt, Kuwait, and Zaire. 
A) Bahamas, Bahrain, Bermuda, and the Cayman Islands. 
B) Denmark, Norway, Switzerland, and Sweden. 
C) Bulgaria, Canada, Saudi Arabia, and South Africa. 
D) Congo, Egypt, Kuwait, and Zaire.

Question 14

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 15

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 16

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 17

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 18

Affiliate A sells a million units to Affiliate B per year. The marginal income tax rate for Affiliate A is 20 percent and the marginal income tax rate for Affiliate B is 50 percent. The transfer price can be set at any level between $100 and $200. Which transfer price between A and B should the parent select?

Accepted Answer

A) $200 
B) $100 
C) $150 
D) It does not matter. 
A) $200 
B) $100 
C) $150 
D) It does not matter.

Question 19

Assume that a product has the following three stages of production:   If the value-added tax (VAT) rate is 20%, what would be the VAT over all stages of production?

Accepted Answer

A) €110 
B) €120 
C) €150 
D) €225 
A) €110 
B) €120 
C) €150 
D) €225

Question 20

There are three basic types of taxation that national governments throughout the world use:

Accepted Answer

A) income tax, withholding tax, and value-added tax. 
B) property tax, wealth tax, and death tax. 
C) import quotas, duties, and tariffs. 
D) tariffs, ad valorem taxes, and income taxes. 
A) income tax, withholding tax, and value-added tax. 
B) property tax, wealth tax, and death tax. 
C) import quotas, duties, and tariffs. 
D) tariffs, ad valorem taxes, and income taxes.

Under the territorial method of declaring a national tax jurisdiction

As a general rule,

The United States withholds ___ of passive income from taxpayers that reside in countries with which it does not have withholding tax treaties.

The U.S. IRS allows transfer prices to be set using

The three basic types of taxation are

A withholding tax is

Tax equity means that

A direct foreign tax credit is

The two main objectives of taxation are

The higher the transfer price

The territorial method of declaring a national tax jurisdiction

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

A "tax haven" country is one that has a low, or zero percent, national tax rates. Some of the countries that fall into this category are

Capital export neutrality

A foreign subsidiary is

The foreign tax credit method followed by the United States is

Many economists prefer a VAT to an income tax because

Assume that a product has the following three stages of production: If the value-added tax (VAT) rate is 20%, what would be the VAT over all stages of production?

There are three basic types of taxation that national governments throughout the world use:

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

Filters

Exam 21: International Tax Environment and Transfer Pricing

Under the territorial method of declaring a national tax jurisdiction

As a general rule,

The United States withholds ___ of passive income from taxpayers that reside in countries with which it does not have withholding tax treaties.

The U.S. IRS allows transfer prices to be set using

The three basic types of taxation are

A withholding tax is

Tax equity means that

A direct foreign tax credit is

The two main objectives of taxation are

The higher the transfer price

The territorial method of declaring a national tax jurisdiction

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

A "tax haven" country is one that has a low, or zero percent, national tax rates. Some of the countries that fall into this category are

Capital export neutrality

A foreign subsidiary is

The foreign tax credit method followed by the United States is

Many economists prefer a VAT to an income tax because

Assume that a product has the following three stages of production: If the value-added tax (VAT) rate is 20%, what would be the VAT over all stages of production?

There are three basic types of taxation that national governments throughout the world use:

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

Filters