Exam 15: Multinational Tax Management

Among the G7 nations, the U.S. has a below average corporate income tax rate that makes it attractive for other countries to invest in the U.S.

Of the OECD 30 countries, most employ a worldwide approach to tax policy, but a few, including the United States, use the worldwide approach.

TABLE 15.1 Use the information to answer following question(s). BayArea Designs Inc., located in Northern California, has two international subsidiaries, one located in the Ukraine, the other in Korea. Consider the information below to answer the next several questions. -Refer to Table 15.1. If BayArea pays out 50% of its earnings from each subsidiary, what are the additional U.S. taxes due on the foreign sourced income from the Ukraine and Korea respectively.

All indications are that the value-added tax will soon be the dominant form of taxation in the U.S.

The United States taxes all earnings on U.S. soil by both domestic and foreign firms. This is an example of a ________ approach to levying taxes.

What is the total value of taxes paid in the following example if the value added tax is 10%? A farmer raises wheat that he sells for $1.50 to the grain company. The grain company sells to the processor for $2.00 per bushel. The processor turns the wheat into a breakfast cereal and wholesales it for $3.00 per bushel. The retailer sells the cereal for $4.00 per bushel.

A tax that is a form of social redistribution of income is defined as a/an ________ tax.

Bacon Signs Inc. is based in a country with a territorial approach to taxation but generates 100% of its income in a country with a worldwide approach to taxation. The tax rate in the country of incorporation is 25%, and the tax rate in the country where they earn their income is 50%. In theory, and barring any special provisions in the tax codes of either country, Bacon should pay taxes at a rate of:

The primary objective of multinational tax planning is to minimize the firm's worldwide tax burden.

Tax treaties generally have the effect of increasing the withholding taxes between the countries that are negotiating the treaties.

________ is the pricing of goods, services, and technology between related companies.

Tax-haven subsidiaries are typically established in a country that can meet the following requirements:

The United States taxes the domestic and remitted foreign earnings of U.S. based MNEs no matter where the earnings occurred. This is an example of a/an ________ approach to levying taxes.

A country CANNOT have both a territorial and a worldwide approach as a national tax policy.

Tax haven subsidiaries of MNEs are categorically referred to as international offshore financial centers.

Use the information to answer the following question(s). Green Valley Exporters USA has $100,000 of before tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%. -Refer to Instruction 15.1. If the U.S. has a bilateral trade agreement with the host country that calls for the total tax paid to be equal to the maximum amount that could be paid in the highest taxing country, what is the total amount of income taxes Green Valley Exporters will pay to the host country, and how much will they pay in U.S income taxes on the foreign earned income?

Between 2006 - 2012, global corporate tax rates have trended upward.

TABLE 15.1 Use the information to answer following question(s). BayArea Designs Inc., located in Northern California, has two international subsidiaries, one located in the Ukraine, the other in Korea. Consider the information below to answer the next several questions. -Refer to Table 15.1. What is the minimum effective tax rate that BayArea can achieve on its foreign-sourced income?

The U.S. Internal Revenue Service can reallocate revenues and expenses between parent corporations and their subsidiaries to more clearly reflect a proper allocation of income. In such instances it is the responsibility of the corporation to prove that the IRS has been arbitrary in its decision-making, thus establishing a "guilty until proved innocent" tax approach.

The ideal tax should not only raise revenue efficiently but also have as few negative effects on economic behavior as possible.