ECO 410 Week 9 Quiz – Strayer
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Quiz 8 Chapter 15 and 16
Multinational Tax Management
15.1 Tax Principles
Multiple Choice
1) The
issue of ethics in the reporting of income and the payment of taxes is a
considerable one. The authors state that most MNEs operating in foreign
countries tend to follow the general principle of:
A)
"when in Rome, do as the Romans do."
B) full
disclosure to the tax authorities.
C)
maintain a competitive playing field by cheating as much as the local
competition, no more, no less.
D) none
of the above
2) Which
of the following is an unlikely objective of U.S. government policy for the
taxation of foreign MNEs?
A) to
raise revenues
B) to
provide an incentive for U.S. private investment in developing countries
C) to
improve the U.S. balance of payments
D) All
of the above are objectives.
3) A
________ tax policy is one that has no impact on private decision-making, while
a ________ policy is designed to encourage specific behavior.
A) flat;
tax incentive
B)
neutral; flat
C)
neutral; tax incentive
D) none
of the above
4) Which
of the following is NOT an example of a tax incentive policy?
A) The
federal government gives a tax credit to MNEs that make domestic capital
improvements but not foreign capital improvements.
B)
Corporations are allowed to take a direct tax credit for each dollar of
matching donations they make to institutions of higher education.
C) A tax
law is passed that makes interest on property non tax-deductible, but interest
payments on durable goods are.
D) All
are examples of a tax incentive policy.
5)
Toyota Motor Company operates in many different countries and pays taxes at
many different rates. However, they always pay the same rate as their local
competitors. Toyota Motor Company is operating in an environment of ________
tax policy.
A)
domestic neutrality
B)
foreign neutrality
C)
territorial approach
D) none
of the above
6) 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)
worldwide
B)
territorial
C)
neutral
D)
equitable
7) 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.
A)
worldwide
B)
neutral
C)
territorial
D) none
of the above
8) 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:
A) 75%.
B)
62.5%.
C) 0%.
D) 50%.
9) The
territorial approach to taxation policy is also termed the ________ approach.
A)
source
B) ethical
C)
greedy
D)
location
10) A
tax that is effectively a sales tax at each stage of production is defined as
a/an ________ tax.
A) flat
B)
equitable
C)
value-added tax
D) none
of the above
11) 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) $0.15
B) $0.20
C) $0.30
D) $0.40
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.
12)
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.
A)
Ukraine = $0; Korea = ($30,000)
B)
Ukraine = $100,000; Korea = $0
C)
Ukraine = $0; Korea = $66,250
D) none
of the above
13)
Refer to Table 15.1. The additional U.S. taxes due on the repatriation of
income from the Ukraine to the United States, alone, assuming a 50% payout
rate, is:
A)
excess foreign tax credits of $110,000.
B)
additional U.S. taxes due of $97,000.
C)
additional U.S. taxes due of $36,500.
D)
excess foreign tax credits of $18,500.
14)
Refer to Table 15.1. How much in additional U.S. taxes would be due if BayArea
averaged the tax credits and liabilities of the two foreign units, assuming a
50% payout rate from each?
A)
$3,750
B)
$13,750
C)
$2,500
D) $0
15)
Refer to Table 15.1. If BayArea set the payout rate from the Ukraine subsidiary
at 25%, how should BayArea set the payout rate of the Korean subsidiary
(approximately) to more efficiently manage its total foreign tax bill?
A) 28.5%
B) 24.5%
C) 42.6%
D) 82.3%
16)
Refer to Table 15.1. What is the minimum effective tax rate that BayArea can
achieve on its foreign-sourced income?
A) 26%
B) 35%
C) 40%
D) 0%
17)
Tax-haven subsidiaries are typically established in a country that can meet the
following requirements:
A) a low
tax on foreign investment or sales income earned by resident corporations and a
low dividend withholding tax on dividends paid to the parent firm.
B) the
facilities to support financial services, for example, good communications,
professional qualified office workers, and reputable banking services.
C) a
stable government that encourages the establishment of foreign-owned financial
and service facilities within its borders.
D) all
of the above
18) A
tax that is a form of social redistribution of income is defined as a/an
________ tax.
A)
un-American
B)
transfer
C) flat
D) none
of the above
19) A
________ is a direct reduction of taxes whereas a ________ reduces the taxable
income before taxes.
A)
foreign tax credit; domestic tax credit
B) tax
deduction; tax credit
C) tax
credit; tax deduction
D) none
of the above
Instruction
15.1:
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%.
20)
Refer to Instruction 15.1. If the U.S. has no bilateral trade agreement with
the host country, what is the total amount of income taxes Green Valley
Exporters will pay?
A)
$25,000
B)
$35,000
C)
$51,250
D)
$60,000
21)
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?
A)
$25,000; $10,000
B)
$25,000; $26,250
C)
$35,000; $0
D) none
of the above
22)
Refer to Instruction 15.1. If the U.S. treated the taxes paid on income earned
in the host country as a tax-deductible expense, then Green Valley's total U.S.
corporate tax on the foreign earnings would be:
A)
$10,000.
B) $26,250.
C)
$35,000.
D)
$51,250.
23)
Refer to Instruction 15.1. If the U.S. treated the taxes paid on income earned
in the host country as a tax-credit, then Green Valley's total U.S. corporate
tax on the foreign earnings would be:
A)
$51,250.
B) $35,000.
C)
$26,250.
D)
$10,000.
24) Tax
treaties typically result in ________ between the two countries in question.
A) lower
property taxes for U.S. citizens overseas
B)
elimination of differential tax rates
C)
increased double taxation
D)
reduced withholding tax rates
25)
Transfer pricing is a strategy that may be used by MNEs to:
A)
reduce consolidated corporate income taxes.
B)
partially finance a subsidiary in another country.
C)
transfer funds from a subsidiary to the parent corporation.
D) all of
the above
26)
________ is the pricing of goods, services, and technology between related
companies.
A) Among
pricing
B)
Retail pricing
C)
Transfer pricing
D)
Wholesale pricing
True/False
1) The
primary objective of multinational tax planning is to minimize the firm's
worldwide tax burden.
2) A
country CANNOT have both a territorial and a worldwide approach as a national
tax policy.
3) Tax
treaties generally have the effect of increasing the withholding taxes between
the countries that are negotiating the treaties.
4) A
value-added tax has gained widespread usage in Western Europe, Canada, and
parts of Latin America.
5) All
indications are that the value-added tax will soon be the dominant form of
taxation in the U.S.
6) 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.
7) In
the mid 1980s the U.S. led the way to higher corporate income tax rates
worldwide. Today, most of the G7 nations have surpassed the U.S. and have
higher corporate income tax rates than the U.S.
8) The
ideal tax should not only raise revenue efficiently but also have as few
negative effects on economic behavior as possible.
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