What is the difference between an international branch office and an international subsidiary quizlet?

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Terms in this set (28)

B. which local culture to follow

Multinational corporations make a number of very important decisions in which taxation is an important variable. Tax issues are important in deciding all of the following, EXCEPT:
A. where to locate a foreign operation
B. which local culture to follow
C. how the operation will be financed
D. what legal form the operation should take

a and c

Which of the following factors determine the amount of income taxes paid to a government?
a. the corporate income tax rate
b. how taxable income is calculated
c. which expenses are deductible

C. In most countries, the trend has been a continuing reduction in corporate tax rates.

What has been the international trend related to corporate income tax rates?
A. In most countries, the trend has been a continuing rise in corporate tax rate.
B. Corporate income taxes around the world have remained constant
C. In most countries, the trend has been a continuing reduction in corporate tax rates.
D. All countries have been raised the corporate income taxes significantly.

B. Bahamas and Ireland

Which countries are considered tax havens?
A. Israel and Malaysia
B. Bahamas and Ireland
C. Bahamas and Chine
D. Spain and Malaysia

C. Countries with different withholding rates on different types of payments.

In which countries would tax-planning strategy tend to be more applicable (i.e. useful, effective)?
A. Countries that do not levy any withholding taxes.
B. Countries with similar withholding rates on different types of payments.
C. Countries with different withholding rates on different types of payments.
D. Countries with one single withholding rate for all types of payments

USA

Which country in 2017 had the highest effective corporate income tax rate?
A. USA
B. Canada
C. China
D. Spain

D. tax havens

The tax jurisdictions with abnormally low corporate income tax rates or no corporate income tax at all are known as:
A. Tax exemption
B. tax reduction
C. tax holiday
D. tax havens

C. subject to 21% of

Select the best answer to complete the following statement: "Beginning 2018, dividends received from foreign subsidiaries are _ US corporate income taxation."
A. no longer subject to
B. subject to 5%-10% of
C. subject to 21% of
D. subject to 15% of

C. 1,2 or 3 or their combination

Regarding the basis of taxation, to determine jurisdictional authority, countries -including the US - usually use:1. source of income2. citizenship3. residence
A. Only 1 and 3
B. either 2 or 3
C. 1,2 or 3 or their combination
D. either 1 or 2

A. The US

Assume a citizen of Italy resides permanently in France and earns dividends from an investment in the shares of a company in the US. Taxing on the basis of source of income, in which country will this individual be subject to taxation?
A. The US
B. EU
C. France
D. Italy

D
Minimize foreign taxes

What is the optimal tax objective for multinational corporations?
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

C
Withholding tax

There are two major taxes imposed on profits earned by corporations in international trade. One is the income tax on earnings. What is the second?
A
Excise tax
B
Payroll tax
C
Withholding tax
D
Value-added tax

D
An amount subtracted from a dividend payout and remitted to the government

What is a withholding tax?
A
Income tax paid on corporate earnings
B
An income tax corporations pay to local governments in addition to the national income tax
C
taxes that lower the effective tax rate in a country
D
An amount subtracted from a dividend payout and remitted to the government

D
All of the above

Because some countries have a lower withholding tax on interest than they do for dividends, multinationals often finance operations with debt rather than equity. What additional reason may an MNC have for using this means of financing?
A
Interest is generally a deductible expense, whereas dividends paid are not.
B
Dividends require a cash outflow but interest does not.
C
Cash flows from dividends must be discounted using the cost of capital, which is not the case with interest payments.
D
All of the above

C
Minimizing the amount of equity capital used to fund foreign operations

What is meant by the term "thin capitalization"?
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

D
The income of a subsidiary is taxable by the country where it is located, but branch income is taxed in the country of the parent company.

How is a foreign subsidiary different from a foreign branch of a domestic company?
A
Subsidiaries always generate more foreign source income than branches do.
B
The subsidiary is a company incorporated in a foreign country, whereas a branch is not a separate company.
C
A subsidiary is created to manufacture and distribute products in foreign markets, whereas a branch does not operate in foreign markets.
D
The income of a subsidiary is taxable by the country where it is located, but branch income is taxed in the country of the parent company.

D
It discourages foreign direct investment.

In general, why do countries wish to avoid double taxation on corporations?
A
The calculations of the taxes are excessively complex.
B
Enforcement of the tax law becomes excessively burdensome.
C
It contributes to accounting diversity.
D
It discourages foreign direct investment.

D
All of the above.

Which of the following is a benefit of tax treaties?
A
They can be used to define tax jurisdiction.
B
They may be used to reduce withholding taxes.
C
They facilitate the exchange of information between countries.
D
All of the above.

B
Some income of the CFC is taxed by the US in the year it is earned rather than when dividends are received.

How does the US government tax controlled foreign corporations (CFC) different from other subsidiaries?
A
All income of the CFC is taxed by the US in the year it is earned rather than when dividends are paid.
B
Some income of the CFC is taxed by the US in the year it is earned rather than when dividends are received.
C
None of the income generated by the CFC is subject to US Tax
D
Only interest income from CFC is taxed in the year received by the US government.

C
Income that is easily moved to low-tax jurisdictions

What is Subpart F Income?
A
All foreign source income
B
Foreign income that is not taxable by foreign jurisdictions
C
Income that is easily moved to low-tax jurisdictions
D
Foreign source income that is exempt from US taxation

True

Assume that a company's objective is to minimize overall worldwide taxes. Answer each of the following questions as True or False.
To minimize worldwide taxes, a parent should set a high transfer price when transferring inventory to a higher tax country.
A
True
B
False

True

By charging high transfer prices on goods and services, the parent can extract cash from a foreign country without incurring withholding taxes.
A
True
B
False

false

To reduce ad valorem import duties based on invoice price, goods should be transferred at higher prices.
A
True
B
False

F

For operations located in countries whose currency is prone to devaluation, parents should set low transfer prices for goods and services provided by the parent.
A
True
B
False

T

To minimize worldwide taxes, a parent should set a high transfer price when transferring services to a lower tax country.
A
True
B
False

T

To help a new foreign operation be competitive, the parent can sell finished goods to a foreign sales subsidiary at low prices.
A
True
B
False

F

Selling goods and services to a foreign subsidiary (downstream sale) at a lower price reduces the amount of profit earned by the foreign subsidiary that will be subject to dividend withholding tax when profits are repatriated.
A
True
B
False

True

To avoid repatriation restrictions, the parent should set high transfer prices if the parent sells to a subsidiary.
A
True
B
False

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