Question 1

A foreign branch 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 2

Using transfer prices "creativity" MNCs can

Accepted Answer

A) try to move blocked funds (but the host country might be watching). 
B) evade tax liabilities (but the host country might be watching). 
C) both a and b 
D) both a and b and there's nothing that the host country government can do about it. 
A) try to move blocked funds (but the host country might be watching). 
B) evade tax liabilities (but the host country might be watching). 
C) both a and b 
D) both a and b and there's nothing that the host country government can do about it.

Question 3

Capital export neutrality

Accepted Answer

A) is a goal based on worldwide economic efficiency. 
B) is an example of Mercantilism. 
C) is based on host country economic efficiency. 
D) is based on MNC home country economic efficiency. 
A) is a goal based on worldwide economic efficiency. 
B) is an example of Mercantilism. 
C) is based on host country economic efficiency. 
D) is based on MNC home country economic efficiency.

Question 4

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

Question 5

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.
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.
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 6

An income tax is a direct tax.

Accepted Answer

A) True 
 B)False

Question 7

The purpose of a withholding tax

Accepted Answer

A) is to assure the local tax authority that it will receive the tax due on the active income earned within its tax jurisdiction. 
B) is to assure the local tax authority that it will receive the tax due on the passive income earned within its tax jurisdiction. 
C) is to assure the local tax authority that it will receive the tax due on all income earned within its tax jurisdiction. 
D) none of the above 
A) is to assure the local tax authority that it will receive the tax due on the active income earned within its tax jurisdiction. 
B) is to assure the local tax authority that it will receive the tax due on the passive income earned within its tax jurisdiction. 
C) is to assure the local tax authority that it will receive the tax due on all income earned within its tax jurisdiction. 
D) none of the above

Question 8

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) €64 
B) €120 
C) €465 
D) €225 
A) €64 
B) €120 
C) €465 
D) €225

Question 9

An overseas affiliate of a U.S. MNC can be organized

Accepted Answer

A) as a branch. 
B) as a subsidiary. 
C) both a and b 
D) none of the above 
A) as a branch. 
B) as a subsidiary. 
C) both a and b 
D) none of the above

Question 10

Transfer pricing can have an effect on how divisions of a MNC are perceived by the local banks. Which transfer price would leave a local affiliate that imports components from the parent with less impressive financial statements?

Accepted Answer

A) High transfer price 
B) Low transfer price 
C) None of the above 
A) High transfer price 
B) Low transfer price 
C) None of the above

Question 11

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) €390 
B) €120 
C) €465 
D) €225 
A) €390 
B) €120 
C) €465 
D) €225

Question 12

Fundamentally, there are two types of tax jurisdiction:

Accepted Answer

A) The worldwide and the territorial. 
B) The residential and the visiting. 
C) The passive and the active income. 
D) The earned and the unearned. 
A) The worldwide and the territorial. 
B) The residential and the visiting. 
C) The passive and the active income. 
D) The earned and the unearned.

Question 13

There are three production stages required before a bicycle produced by Masi Bicicletia S.A. can be sold at retail for €4,500. The VAT rate is 15%. Find the total tax liability due.

Accepted Answer

A) €525 
B) €675 
C) €3,500 
D) None of the above 
A) €525 
B) €675 
C) €3,500 
D) None of the above

Question 14

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 15

Tax evasion is more difficult under a VAT because

Accepted Answer

A) at each stage in the production process producers have an incentive to obtain documentation from the previous stage that the VAT was paid in order to get the greatest tax credit possible. 
B) customers can't convince retailers to sell things without a receipt. 
C) the cost of record keeping under a VAT system imposes an economic hardship on small businesses. 
D) none of the above 
A) at each stage in the production process producers have an incentive to obtain documentation from the previous stage that the VAT was paid in order to get the greatest tax credit possible. 
B) customers can't convince retailers to sell things without a receipt. 
C) the cost of record keeping under a VAT system imposes an economic hardship on small businesses. 
D) none of the above

Question 16

Many countries have tax treaties with one another. These generally specify

Accepted Answer

A) the withholding tax rate applied to various types of passive income. 
B) that withholding tax rates imposed through tax treaties are bilateral. 
C) the two countries agree to impose the same tax rate on the same category of income. 
D) all of the above 
A) the withholding tax rate applied to various types of passive income. 
B) that withholding tax rates imposed through tax treaties are bilateral. 
C) the two countries agree to impose the same tax rate on the same category of income. 
D) all of the above

Question 17

Active income

Accepted Answer

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

Question 18

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. 
A) more attractive. 
B) less attractive. 
C) no impact.

Question 19

As a rule, payments to and from foreign affiliates,

Accepted Answer

A) involve the issue of transfer pricing. 
B) involve accounting values assigned to goods or services exchanged between foreign affiliates. 
C) involve tax credits trading between affiliates. 
D) both a and b 
A) involve the issue of transfer pricing. 
B) involve accounting values assigned to goods or services exchanged between foreign affiliates. 
C) involve tax credits trading between affiliates. 
D) both a and b

Question 20

The idea 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 is referred to as

Accepted Answer

A) capital-export neutrality. 
B) capital-import neutrality. 
C) national neutrality. 
D) none of the above 
A) capital-export neutrality. 
B) capital-import neutrality. 
C) national neutrality. 
D) none of the above

Exam 21: International Tax Environment and Transfer Pricing

A foreign branch is

Using transfer prices "creativity" MNCs can

Capital export neutrality

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?

Capital import neutrality

An income tax is a direct tax.

The purpose of a withholding tax

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?

An overseas affiliate of a U.S. MNC can be organized

Transfer pricing can have an effect on how divisions of a MNC are perceived by the local banks. Which transfer price would leave a local affiliate that imports components from the parent with less impressive financial statements?

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?

Fundamentally, there are two types of tax jurisdiction:

There are three production stages required before a bicycle produced by Masi Bicicletia S.A. can be sold at retail for €4,500. The VAT rate is 15%. Find the total tax liability due.

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

Tax evasion is more difficult under a VAT because

Many countries have tax treaties with one another. These generally specify

Active income

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

As a rule, payments to and from foreign affiliates,

The idea 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 is referred to as

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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