tb17

KirtC.Butler,MultinationalFinance,3rdedition134Chapter17TaxesandMultinationalCorporateStrategyTrue/False1.Aneutraltaxisonethatisdesignedtohavetheleasteffectongrossnationalproduct.ANS:False.Aneutraltaxdoesnotinterferewithcapitalflows.2.Domestictaxneutralityattemptstoputtheforeignanddomesticoperationsofdomesticallybasedmultinationalcorporationsonanevenfooting.ANS:True.3.Theobjectiveofforeigntaxneutralityistoensurethattaxesimposedontheforeignoperationsofdomesticcompaniesaresimilartothosefacinglocalcompetitorsinthehostcountries.ANS:True.4.Ifanation’staxesconformtodomestictaxneutrality,theyalsoconformtoforeigntaxneutrality.ANS:False.Cross-borderdifferencesinnationaltaxsystemsmaketaxneutralityunachievable.5.Bilateraltaxtreatiesensuresomeconsistencyinthetaxtreatmentofforeign-sourceincome.ANS:True.6.Bilateraltaxtreatiesensurethatbothdomesticandforeigntaxneutralityareupheld.ANS:False.Ifnationaltaxratesdiffer,jointdomesticandforeigntaxneutralitycannothold.7.TheModelTreatyoftheOrganizationforEconomicCooperationandDevelopmentidentifiestargetcorporateincometaxratesforvariousnations.ANS:False.Itisamodelofabilateraltaxtreatydesignedtoavoiddoubletaxationofincome.8.Thelawofonepriceimposesanimplicittaxonassetsinlow-taxjurisdictions.ANS:True.9.Thelawofonepricerequiresthatexpectedbefore-taxratesofreturnoncomparable-riskassetsareequalacrossallcountries.ANS:False.After-taxreturnsmattertoinvestors.10.Valueaddedtaxesareaformofimplicittax.ANS:False.Valueaddedtaxesareanexplicittax.11.IncomefromaforeignbranchistaxedbytheU.S.governmentatthetimethefundsarerepatriatedtotheU.S.parentcorporation.ANS:False.Foreign-sourceincomefromaforeignbranchistaxedasitisearned.12.IncomebasketsintheU.S.taxcodereducetheusefulnessofexcessforeigntaxcredits.ANS:True.13.Earningsfromforeigncorporationsthatarebetween10%and50%ownedbyaU.S.parentarecalledSubpartFincome.ANS:True.14.Themultinationalcorporationcanignoreimplicittaxesinitsglobalsitelocationdecisions.ANS:False.Implicittaxesmustbeconsidered.KirtC.Butler,MultinationalFinance,3rdedition13515.Internationaltaxationistheoverridingfactoringlobalsitelocationdecisions.ANS:False.Itisbutoneofmanyfactors.16.Section486oftheU.S.InternalRevenueCoderequirestransferpricesbesetatparvalue.ANS:False.Transferpricesmustbesetasiftransactionswerebetweenunrelatedparties.MultipleChoice1.____taxneutralityensuresthatincomesarisingfromforeignandfromdomesticoperationsaretaxedsimilarlybythedomesticgovernment.a.Domesticb.Foreignc.Globald.twoormoreoftheabovee.noneoftheaboveANS:A2.____taxneutralityensuresthattaxesimposedontheforeignoperationsofdomesticcompaniesaresimilartothosefacinglocalcompetitorsinthehostcountries.a.Domesticb.Foreignc.Globald.twoormoreoftheabovee.noneoftheaboveANS:B3.Nationaltaxpoliciesinfluenceeachofthefollowingcharacteristics(athroughc)ofthemultinationalcorporationexcept____.a.theorganizationalformsinwhichmultinationalcorporationschoosetooperateb.thetypesandlocationsofassetsheldc.thewayinwhichthemultinationalcorporationfinancesitsoperationsd.Eachoftheaboveisareinfluencedbynationaltaxpoliciese.NationaltaxpolicyhaslittleeffectonanyoftheaboveANS:D4.Ina(n)____taxsystem,themultinational’sworldwideincomeistaxedbythehomecountryasthisincomeisrepatriatedtotheparentcompany.a.explicitb.implicitc.globald.territoriale.worldwideANS:E5.Ina(n)____taxsystem,onlydomesticincomeistaxedbythedomesticgovernment.Foreign-sourceincomeisnottaxedaslongasitisearnedinanactivebusiness.a.explicitKirtC.Butler,MultinationalFinance,3rdedition136b.implicitc.globald.territoriale.worldwideANS:D6.Implicittaxesincludewhichofthefollowing?a.assettaxesb.higherpre-taxrequiredreturnsincountrieswithhightaxratesc.incometaxesd.value-addedtaxese.noneoftheaboveANS:B7.Whichofa)throughd)isnotaformofexplicittax?a.assettaxesb.tariffsoncross-bordertradec.value-addedtaxesd.withholdingtaxese.alloftheaboveareexplicittaxesANS:E8.Withholdingtaxesaremostfrequentlyfoundonwhichincomecategory?a.assetsb.capitalgainsc.dividendsd.royaltiese.value-addedANS:C9.Value-addedtaxesareaformof____.a.capitalgainstaxb.implicittaxc.incometaxd.salestaxe.tariffoncross-bordertradeANS:D10.Implicittaxesarisefrom____.a.afailuretohideincomefromthetaxingauthoritiesb.anation’slaborlawsc.thelawofonepriced.valueadditivitye.noneoftheaboveANS:C11.TaxratesincountriesBandSaretB=40%andtS=25%,respectively.Pre-taxrequiredreturnsinBareiB=25%.Whatshouldbethepre-taxrequiredreturninS?KirtC.Butler,MultinationalFinance,3rdedition137a.5%b.10%c.15%d.20%e.noneoftheaboveANS:D12.ActiveincomeearnedfromaforeignbranchistaxedbytheU.S.government____.a.afterpoolingthisincomewithallotherincomesourcesb.asfundsarerepatriatedtotheU.S.parentcorporationc.asitisearnedintheforeigncountryd.attheforeigntaxratee.noneoftheaboveANS:C13.ForeignbranchesofaU.S.corporationaretreatedas____.a.adomesticcorporationb.acontrolledforeigncorporationc.apartoftheparentratherthanasaseparatelegalentityd.slavestothemastercorporatione.noneoftheaboveANS:C14.TheUnitedStatesallowsaforeigntaxcreditagainstU.S.incometaxesupto____.a.£200,000b.£1,000,000c.theamount