Question 1

The worldwide method of declaring a national tax jurisdiction

Accepted Answer

A) is also known as the residential method. 
B) is to tax national residents of the country on their worldwide income no matter in which country it is earned. 
C) is different from the territorial method of declaring a national tax jurisdiction. 
D) all of the above

Question 2

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 3

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

Question 4

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 5

Withholding tax rates imposed through tax treaties are

Accepted Answer

A) bilateral. 
B) multilateral. 
C) netted. 
D) none of the above

Question 6

Assume that a product has the following three stages of production: $$\begin{array} { c l } 
\text { Production } & \text { Selling } \
\text { Stage } & \text { Price } \
\hline 1 & € 10 \
2 & € 250 \
3 & € 1,500
\end{array}$$ If the value-added tax (VAT)rate is 20%,what would be the VAT over all stages of production?

Accepted Answer

A) € 90 
B) €120 
C) €300 
D) €225

Question 7

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 8

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 9

When the income tax rate in the host country is greater than the tax rate in the parent country,

Accepted Answer

A) it is beneficial to follow a high markup policy on transferred goods and services from the parent to a foreign affiliate. 
B) it is beneficial to follow a low markup policy on transferred goods and services from the parent to a foreign affiliate. 
C) transfer pricing will not affect the total tax liability, net of foreign tax credit offsets. 
D) none of the above

Question 10

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

Question 11

Value-added tax (VAT)is

Accepted Answer

A) a direct national tax levied on the value added in the production of a good (or service) as it moves through various stages of production. 
B) an indirect national tax levied on the value added in the production of a good (or service) as it moves through various stages of production. 
C) the equivalent of imposing a national sales tax. 
D) both b and c

Question 12

The term "capital-import neutrality" refers to

Accepted Answer

A) the criterion that an ideal tax should be effective in raising revenue for the government and not have any negative effects on the economic decision-making process of the taxpayer. 
B) the fact 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) the criterion that the tax burden a host country imposes on the foreign subsidiary of a MNC should be the same regardless in which country the MNC is incorporated and the same as that placed on domestic firms. 
D) underlying principle that all similarly situated taxpayers should participate in the cost of operating the government according to the same rules.

Question 13

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. 
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 14

When excess tax credits go unused,the foreign tax liability for a branch is greater than the corresponding U.S.tax liability when the foreign income tax rate is greater than the U.S.rate.Calculate the total tax liability for a wholly-owned subsidiary when excess tax credits cannot be used in a country given: $35 \%$ U.S. tax rate
$41 \%$ Foreign tax rate
$4 \%$ Withholding tax rate

Accepted Answer

A) 35.00% 
B) 37.00% 
C) 43.36% 
D) 42.05%

Question 15

Suppose a U.S.-based MNC makes computers with parts from its subsidiary in a low-tax East Asian country.It can reduce its reported U.S.income-and increase its subsidiary's profits-by

Accepted Answer

A) overpaying for the computer components. 
B) underpaying for the computer components. 
C) paying an arm's length price. 
D) none of the above

Question 16

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.

Question 17

A tax haven is

Accepted Answer

A) a country that has a low corporate income tax rate and low withholding tax rates on passive income. 
B) a country with no taxes and no enforcement of foreign tax laws within its borders. 
C) any country with a higher tax rate that available domestically. 
D) none of the above

Question 18

An income tax is defined by your textbook as

Accepted Answer

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

Question 19

The worldwide or residential method of declaring a national tax jurisdiction is to

Accepted Answer

A) tax national residents of the country on their worldwide income no matter in which country it is earned. 
B) tax all income earned within the country by any taxpayer, domestic or foreign. 
C) tax foreign residents of the country on their home-country income but not foreign-earned income. 
D) none of the above

Question 20

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.

Exam 21: International Tax Environment and Transfer Pricing