Question 1

What explains the "follow-the-leader" effect of countries changing their corporate tax rates in response to changes made by other countries?

Accepted Answer

A)  Harmonization of accounting standards 
B)  Competition for foreign investment 
C)  Currencies pegged to another country's currency 
D)  None of the above 
A)  Harmonization of accounting standards 
B)  Competition for foreign investment 
C)  Currencies pegged to another country's currency 
D)  None of the above

Question 2

How is a foreign subsidiary different from a foreign branch of a domestic corporation?

Accepted Answer

A)  Subsidiaries always generate more foreign source income than branches do. 
B)  The subsidiary is a company incorporated in the foreign country, whereas a branch is not a separate corporation. 
C)  A subsidiary is created to manufacture and distribute products in foreign markets, whereas a branch's only function is sales in the foreign market. 
D)  The income of a subsidiary is taxable by the country where it is located, but branch income is not subject to tax by the country where it does business. 
A)  Subsidiaries always generate more foreign source income than branches do. 
B)  The subsidiary is a company incorporated in the foreign country, whereas a branch is not a separate corporation. 
C)  A subsidiary is created to manufacture and distribute products in foreign markets, whereas a branch's only function is sales in the foreign market. 
D)  The income of a subsidiary is taxable by the country where it is located, but branch income is not subject to tax by the country where it does business.

Question 3

The categories of foreign source income defined by the Tax Reform Act of 1986 are referred to as:

Accepted Answer

A)  FTC rates. 
B)  FTC credits. 
C)  FTC baskets. 
D)  FTC brackets. 
A)  FTC rates. 
B)  FTC credits. 
C)  FTC baskets. 
D)  FTC brackets.

Question 4

Under the citizenship approach of tax jurisdiction, if Company A, incorporated in Country X, was based in Country Y and earned dividends in Country Z, the dividends would be ultimately taxed in which country?

Accepted Answer

A)  Country Z 
B)  Country Y 
C)  Country X 
D)  None of the above, based on tax neutrality 
A)  Country Z 
B)  Country Y 
C)  Country X 
D)  None of the above, based on tax neutrality

Question 5

Under the U.S. model tax treaty, which of the following statements is correct?

Accepted Answer

A)  Interest and royalties are exempt from withholding. 
B)  Dividends are subject to a maximum 20% withholding. 
C)  Interest and royalties are subject to a maximum 15% withholding. 
D)  No passive income is exempt from withholding. 
A)  Interest and royalties are exempt from withholding. 
B)  Dividends are subject to a maximum 20% withholding. 
C)  Interest and royalties are subject to a maximum 15% withholding. 
D)  No passive income is exempt from withholding.

Question 6

Under what condition may it be to the taxpayer's advantage to take a deduction for total foreign taxes paid rather than a tax credit for foreign income taxes?

Accepted Answer

A)  If the foreign income tax rate is greater than the U.S. federal income tax rate 
B)  If the foreign income tax rate is less than the U.S. federal income tax rate 
C)  If foreign source income is less than domestic income 
D)  If foreign taxes other than income taxes are substantial 
A)  If the foreign income tax rate is greater than the U.S. federal income tax rate 
B)  If the foreign income tax rate is less than the U.S. federal income tax rate 
C)  If foreign source income is less than domestic income 
D)  If foreign taxes other than income taxes are substantial

Question 7

The subsidiary of a U.S. corporation located in Country Y generated income of $1,000,000 on which it paid $400,000 (40%) in taxes to Country Y. The subsidiary paid a dividend to the U.S. parent of $54,000. How much tax is currently owed to the U.S. government if the federal tax rate is 35%?

Accepted Answer

A)  $18,900 
B)  $350,000 
C)  $140,000 
D)  $0 
A)  $18,900 
B)  $350,000 
C)  $140,000 
D)  $0

Question 8

________ describes a process in which a resident of Country A uses a corporation in Country B to get the benefit of Country B's tax treaty with Country C.

Accepted Answer

A)  Capital budgeting 
B)  Tax holiday 
C)  Treaty shopping 
D)  Bona fide residence test 
A)  Capital budgeting 
B)  Tax holiday 
C)  Treaty shopping 
D)  Bona fide residence test

Question 9

To determine U.S. taxable income, foreign branch net income is grossed up by:

Accepted Answer

A)  adding taxes paid to the foreign government translated at the exchange rate at the end of the year. 
B)  deducting taxes paid to the domestic government translated at the exchange rate at the date of payment. 
C)  adding taxes paid to the foreign government translated at the exchange rate at the date of payment. 
D)  deducting taxes paid to the foreign government translated at the exchange rate at the date of payment. 
A)  adding taxes paid to the foreign government translated at the exchange rate at the end of the year. 
B)  deducting taxes paid to the domestic government translated at the exchange rate at the date of payment. 
C)  adding taxes paid to the foreign government translated at the exchange rate at the date of payment. 
D)  deducting taxes paid to the foreign government translated at the exchange rate at the date of payment.

Question 10

In general, why do countries wish to avoid double taxation on corporations?

Accepted Answer

A)  The calculations of the taxes are excessively complex. 
B)  It discourages foreign direct investment. 
C)  Enforcement of the tax law becomes excessively burdensome. 
D)  It contributes to accounting diversity. 
A)  The calculations of the taxes are excessively complex. 
B)  It discourages foreign direct investment. 
C)  Enforcement of the tax law becomes excessively burdensome. 
D)  It contributes to accounting diversity.

Question 11

What is a tax haven?

Accepted Answer

A)  A jurisdiction where taxes are abnormally low 
B)  A location where tax cheats live to escape prosecution 
C)  A tax jurisdiction where world-wide tax is eliminated 
D)  Locations that provide tax-based incentives to corporations 
A)  A jurisdiction where taxes are abnormally low 
B)  A location where tax cheats live to escape prosecution 
C)  A tax jurisdiction where world-wide tax is eliminated 
D)  Locations that provide tax-based incentives to corporations

Question 12

What term is used to describe a foreign corporation in which U.S. shareholders hold more than 50% of the voting power or fair market value of the corporation's stock?

Accepted Answer

A)  Branch 
B)  Holding company 
C)  Controlled foreign corporation 
D)  Tax-exempt foreign corporation 
A)  Branch 
B)  Holding company 
C)  Controlled foreign corporation 
D)  Tax-exempt foreign corporation

Question 13

Which of the following is the most important type of Subpart F income?

Accepted Answer

A)  Income from countries engaged in international boycotts 
B)  Income from foreign base companies 
C)  Income from insurance of U.S. risks 
D)  Income from illegal payments 
A)  Income from countries engaged in international boycotts 
B)  Income from foreign base companies 
C)  Income from insurance of U.S. risks 
D)  Income from illegal payments

Question 14

What approach is taken by the United States of America relative to taxing income?

Accepted Answer

A)  Citizenship only 
B)  Residence only 
C)  Both citizenship and residence 
D)  None of the above 
A)  Citizenship only 
B)  Residence only 
C)  Both citizenship and residence 
D)  None of the above

Question 15

What is meant by the term "thin capitalization?"

Accepted Answer

A)  Undervaluing foreign investments 
B)  Using as little debt financing as a country will allow 
C)  Minimizing the amount of equity capital used to fund foreign operations 
D)  Creating transparency in the methods used to fund foreign operations 
A)  Undervaluing foreign investments 
B)  Using as little debt financing as a country will allow 
C)  Minimizing the amount of equity capital used to fund foreign operations 
D)  Creating transparency in the methods used to fund foreign operations

Question 16

Under U.S. tax law, what is the basis for the overall foreign tax credit limitation?

Accepted Answer

A)  To make sure that foreign governments get their fair share of a foreign subsidiary's income 
B)  To ensure that the foreign tax credit taken by a corporation does not exceed the actual foreign tax it paid 
C)  To make sure that the foreign tax credit taken by a corporation does not exceed the amount of taxes the foreign affiliate would have paid in the U.S. 
D)  To minimize world-wide taxes on the U.S. corporation 
A)  To make sure that foreign governments get their fair share of a foreign subsidiary's income 
B)  To ensure that the foreign tax credit taken by a corporation does not exceed the actual foreign tax it paid 
C)  To make sure that the foreign tax credit taken by a corporation does not exceed the amount of taxes the foreign affiliate would have paid in the U.S. 
D)  To minimize world-wide taxes on the U.S. corporation

Question 17

What is the optimal tax objective for multinational corporations?

Accepted Answer

A)  Minimize domestic taxes paid on worldwide income 
B)  Minimize worldwide taxes paid, within the limitations of applicable tax law 
C)  Minimize the credit for worldwide taxes paid 
D)  Minimize foreign taxes 
A)  Minimize domestic taxes paid on worldwide income 
B)  Minimize worldwide taxes paid, within the limitations of applicable tax law 
C)  Minimize the credit for worldwide taxes paid 
D)  Minimize foreign taxes

Question 18

What is the meaning of "tax system neutrality?"

Accepted Answer

A)  Taxes should be minimized. 
B)  Tax systems should not be a major factor in business decisions. 
C)  Tax policies should be unbiased. 
D)  Taxes in one jurisdiction are offset by tax credits in another jurisdiction. 
A)  Taxes should be minimized. 
B)  Tax systems should not be a major factor in business decisions. 
C)  Tax policies should be unbiased. 
D)  Taxes in one jurisdiction are offset by tax credits in another jurisdiction.

Question 19

How might a parent company's home country eliminate double taxation on foreign source income?

Accepted Answer

A)  Tax credits for taxes paid to foreign countries 
B)  Tax deductions for taxes paid to foreign countries 
C)  Taking a territorial approach to taxing income 
D)  All of the above 
A)  Tax credits for taxes paid to foreign countries 
B)  Tax deductions for taxes paid to foreign countries 
C)  Taking a territorial approach to taxing income 
D)  All of the above

Question 20

What term is used for the characteristic of a tax system whereby a company's decisions to invest domestically or abroad is not affected by taxation?

Accepted Answer

A)  Foreign tax credit 
B)  Unbiased 
C)  Capital export neutrality 
D)  Capital investment irrelevance 
A)  Foreign tax credit 
B)  Unbiased 
C)  Capital export neutrality 
D)  Capital investment irrelevance

What explains the "follow-the-leader" effect of countries changing their corporate tax rates in response to changes made by other countries?

How is a foreign subsidiary different from a foreign branch of a domestic corporation?

The categories of foreign source income defined by the Tax Reform Act of 1986 are referred to as:

Under the citizenship approach of tax jurisdiction, if Company A, incorporated in Country X, was based in Country Y and earned dividends in Country Z, the dividends would be ultimately taxed in which country?

Under the U.S. model tax treaty, which of the following statements is correct?

Under what condition may it be to the taxpayer's advantage to take a deduction for total foreign taxes paid rather than a tax credit for foreign income taxes?

The subsidiary of a U.S. corporation located in Country Y generated income of $1,000,000 on which it paid $400,000 (40%) in taxes to Country Y. The subsidiary paid a dividend to the U.S. parent of $54,000. How much tax is currently owed to the U.S. government if the federal tax rate is 35%?

________ describes a process in which a resident of Country A uses a corporation in Country B to get the benefit of Country B's tax treaty with Country C.

To determine U.S. taxable income, foreign branch net income is grossed up by:

In general, why do countries wish to avoid double taxation on corporations?

What is a tax haven?

What term is used to describe a foreign corporation in which U.S. shareholders hold more than 50% of the voting power or fair market value of the corporation's stock?

Which of the following is the most important type of Subpart F income?

What approach is taken by the United States of America relative to taxing income?

What is meant by the term "thin capitalization?"

Under U.S. tax law, what is the basis for the overall foreign tax credit limitation?

What is the optimal tax objective for multinational corporations?

What is the meaning of "tax system neutrality?"

How might a parent company's home country eliminate double taxation on foreign source income?

What term is used for the characteristic of a tax system whereby a company's decisions to invest domestically or abroad is not affected by taxation?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

International Transfer Pricing

Management Accounting Issues in Multinational Corporations

Auditing and Corporate Governance: An International Perspective

International Sustainability Reporting

Filters

Exam 8: International Taxation

What explains the "follow-the-leader" effect of countries changing their corporate tax rates in response to changes made by other countries?

How is a foreign subsidiary different from a foreign branch of a domestic corporation?

The categories of foreign source income defined by the Tax Reform Act of 1986 are referred to as:

Under the citizenship approach of tax jurisdiction, if Company A, incorporated in Country X, was based in Country Y and earned dividends in Country Z, the dividends would be ultimately taxed in which country?

Under the U.S. model tax treaty, which of the following statements is correct?

Under what condition may it be to the taxpayer's advantage to take a deduction for total foreign taxes paid rather than a tax credit for foreign income taxes?

The subsidiary of a U.S. corporation located in Country Y generated income of $1,000,000 on which it paid $400,000 (40%) in taxes to Country Y. The subsidiary paid a dividend to the U.S. parent of $54,000. How much tax is currently owed to the U.S. government if the federal tax rate is 35%?

________ describes a process in which a resident of Country A uses a corporation in Country B to get the benefit of Country B's tax treaty with Country C.

To determine U.S. taxable income, foreign branch net income is grossed up by:

In general, why do countries wish to avoid double taxation on corporations?

What is a tax haven?

What term is used to describe a foreign corporation in which U.S. shareholders hold more than 50% of the voting power or fair market value of the corporation's stock?

Which of the following is the most important type of Subpart F income?

What approach is taken by the United States of America relative to taxing income?

What is meant by the term "thin capitalization?"

Under U.S. tax law, what is the basis for the overall foreign tax credit limitation?

What is the optimal tax objective for multinational corporations?

What is the meaning of "tax system neutrality?"

How might a parent company's home country eliminate double taxation on foreign source income?

What term is used for the characteristic of a tax system whereby a company's decisions to invest domestically or abroad is not affected by taxation?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

International Transfer Pricing

Management Accounting Issues in Multinational Corporations

Auditing and Corporate Governance: An International Perspective

International Sustainability Reporting

Filters