Question 1

With a MNC

Accepted Answer

A) the decision to set a transfer price is further complicated by import duty considerations. 
B) the decision to set a transfer price can be further complicated by exchange rate restrictions imposed by governments. 
C) the decision to set a transfer price is further complicated by tax considerations, if there is a difference in tax rates between the host country and the home country. 
D) all of the above

Question 2

An income tax is defined by your textbook as is

Accepted Answer

A)  direct tax. 
B) is an indirect tax. 
C) is collected with a withholding tax. 
D) none of the above

Question 3

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 above

Question 4

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

Question 5

Active income

Accepted Answer

A) income 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 6

In general the United States claims

Accepted Answer

A) only a limited taxing jurisdiction over nonresident alien individuals and foreign corporations. 
B) unlimited taxing jurisdiction over nonresident alien individuals and foreign corporations. 
C) unlimited taxing jurisdiction over resident alien individuals and foreign corporations. 
D) none of the above

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

Question 8

The underlying principle of tax equity is that

Accepted Answer

A) all similarly situated taxpayers should participate in the cost of operating the government according to the same rules. 
B) all similarly situated taxpayers should participate in the cost of operating the government on an equal basis. 
C) none of the above

Question 9

Tax neutrality is determined by three criteria: which of the following doesn't belong?

Accepted Answer

A) Capital-export neutrality 
B) Capital-import neutrality 
C) National neutrality 
D) Income neutrality

Question 10

Tax neutrality

Accepted Answer

A) has its foundations in the principles of economic efficiency and equity. 
B) can be a difficult principle to apply in practice. 
C) is determined by three criteria: capital export neutrality, capital import neutrality and national neutrality. 
D) all of the above

Question 11

Suppose a U.S.-based MNC makes bicycles with parts from its subsidiary in a low-tax East Asian country.The bicycle frames are made here,the component parts (cranksets,wheels,and so on)are made abroad,the bicycles are assembled in Japan and reimported to the U.S.It can reduce its reported U.S.income-and increase its subsidiary's profits-by

Accepted Answer

A) overcharging its subsidiaries for the U.S.-made frames. 
B) undercharging its subsidiaries for the U.S.-made frames. 
C) assembling the bicycles in the U.S. 
D) none of the above

Question 12

Tax neutrality is determined

Accepted Answer

A) by one criterion. 
B) by two criteria. 
C) by three criteria. 
D) by four criteria.

Question 13

Suppose you are a citizen of the United States with foreign-source income.In the foreign country the tax rate is 40 percent and your U.S.rate is 30%.For every $10,000 of foreign-source income you will

Accepted Answer

A) receive a tax credit of $3,000. 
B) receive a tax credit of $3,500. 
C) receive a tax credit of $4,000. 
D) receive a tax credit of $1,000.

Question 14

The current marginal U.S.income tax rate is positioned

Accepted Answer

A) pretty well in the middle of the rates assessed by the majority of other countries. 
B) towards the upper end of the rates assessed by the majority of other countries. 
C) towards the lower end of the rates assessed by the majority of other countries.

Question 15

The territorial method of declaring a national tax jurisdiction is to

Accepted Answer

A) tax all income earned within the country by any taxpayer, domestic or foreign. 
B) tax national residents of the country on their worldwide income no matter in which country it is earned. 
C) also known as the residential method. 
D) none of the above

Question 16

If U.S.taxing authorities did not limit the amount of the foreign tax credit to the equivalent amount of the U.S.tax

Accepted Answer

A) U.S.taxpayers would arguably subsidize part of the tax liabilities of U.S.MNC's foreign earned income. 
B) national neutrality would suffer. 
C) U.S.MNCs would all depart our shores. 
D) all of the above

Question 17

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)

Question 18

The three basic types of taxation are

Accepted Answer

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

Question 19

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

Question 20

In the United States foreign-source income is taxed at the same rate as U.S.-earned income and a foreign tax credit is given against taxes paid to a foreign government.However,

Accepted Answer

A) the foreign tax credit is limited to the amount of tax that would be due on that income if it were earned in the United States. 
B) if the tax rate paid on foreign-source income is greater than the U.S.tax rate, part of the credit may go unused. 
C) both of the above are true statements. 
D) none of the above are true

Exam 21: International Tax Environment and Transfer Pricing