International Financial Management, 8e (Eun)
1) An income tax is a direct tax.
2) The two main objectives of taxation are
A) tax neutrality and tax equity.
B) complexity and revenue.
C) social engineering and tax equity.
D) progressive taxation and tax neutrality.
3) The three basic types of taxation are
A) income tax, withholding tax, and value-added tax.
B) income tax, withholding tax, and business tax.
C) withholding tax, value-added tax, and corporate tax.
D) personal tax, corporate tax, and operating tax.
4) Tax neutrality is determined
A) by one criterion.
B) by two criteria.
C) by three criteria.
D) by four criteria.
5) Tax neutrality is determined by three criteria: which of the following doesn’t belong?
A) Capital-export neutrality
B) Capital-import neutrality
C) National neutrality
D) Income neutrality
6) Tax neutrality
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 options
7) The idea that an ideal tax should be effective in raising revenue for the government but not have
any negative effects on the economic decision-making process of the taxpayer is referred to as
A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) none of the options
8) The idea 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 is referred to as
A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) none of the options
9) Capital export neutrality
A) is a goal based on worldwide economic efficiency.
B) is an example of Mercantilism.
C) is based on host country economic efficiency.
D) is based on MNC home country economic efficiency.
10) The idea that the tax burden a host country imposes on the foreign subsidiary of an MNC
should be the same regardless of the country in which the MNC is incorporated and the same as
that placed on domestic firms is earned is referred to as
A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) none of the options
11) Capital export neutrality
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 options
12) National neutrality
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 options
13) Capital import neutrality
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 options
14) The term “capital-import neutrality” refers to
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 an MNC
should be the same regardless in which country the MNC is incorporated and the same as that
placed on domestic firms.
D) the underlying principle that all similarly situated taxpayers should participate in the cost of
operating the government according to the same rules.
15) The criteria of tax neutrality: capital export neutrality, capital import neutrality and national
neutrality
A) are all consistent with one another.
B) are not always consistent with one another.
C) are all identical with one another.
D) none of the options
16) Implementing capital import neutrality means that
A) a sovereign government follows the taxation policies of foreign tax authorities on the
foreign-source income of its resident MNCs.
B) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same
regardless of the country in which the MNC is incorporated.
C) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same
as that placed on domestic firms.
D) all of the options
17) Tax equity means that
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 an 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 options
18) The underlying principle of tax equity is that
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 options
19) If a dollar earned by a foreign affiliate is taxed under the same rules as a dollar earned by a
domestic affiliate of the MNC, then we have achieved
A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) tax equity.
20) The organizational form of an MNC can affect the timing of a tax liability. This means
A) the principle of tax equity might be violated.
B) as long as, regardless of the country in which an affiliate of an MNC earns taxable income, the
same tax rates apply, then the tax due date doesn’t matter.
C) tax timing will even out over a reporting cycle, so there is no big deal here.
D) none of the options
21) There are three basic types of taxation that national governments throughout the world use:
A) income tax, withholding tax, and value-added tax.
B) property tax, wealth tax, and death tax.
C) import quotas, duties, and tariffs.
D) tariffs, ad valorem taxes, and income taxes.
22) An income tax is defined in your textbook as
A) a direct tax.
B) an indirect tax.
C) being collected with a withholding tax.
D) none of the options
24) The current marginal U.S. income tax rate is positioned
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.
D) none of the options
25) A withholding tax is defined in your textbook as
A) the money that the government takes for every worker’s paycheck.
B) social security taxes.
C) a tax levied on income earned by an individual (or corporation) of one country within the tax
jurisdiction of another county.
D) a tax levied on passive income earned by an individual (or corporation) of one country within
the tax jurisdiction of another county.
26) The purpose of a withholding tax
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 options
27) A withholding tax is
A) an indirect tax.
B) a direct tax.
C) both a direct and an indirect tax.
D) none of the options
28) Withholding tax rates imposed through tax treaties are
A) bilateral.
B) multilateral.
C) netted.
D) none of the options
29) The United States withholds ________ of passive income from taxpayers that reside in
countries with which it does not have withholding tax treaties.
A) 10 percent
B) 20 percent
C) 30 percent
D) 40 percent
30) A withholding tax
A) is borne by a taxpayer who did not directly generate the income that serves as the source of the
passive income.
B) is a direct tax on workers.
C) assures the local tax authority that it will receive the tax due on the passive income earned
within its tax jurisdiction.
D) is borne by a taxpayer who did not directly generate the income that serves as the source of the
passive income, and also assures the local tax authority that it will receive the tax due on the
passive income earned within its tax jurisdiction.
31) Many countries have tax treaties with one another. These generally specify
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 options
32) Value-added tax (VAT) is
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) 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, and is also the equivalent of imposing a national sales
tax.
33) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
600
2
€
1,400
3
€
1,700
If the value-added tax (VAT) rate is 15 percent, what is the incremental VAT at Stage 2 of
production?
A) €75
B) €120
C) €210
D) €255
34) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
600
2
€
1,400
3
€
1,700
If the value-added tax (VAT) rate is 15 percent, what would be the VAT over all stages of
production?
A) €90
B) €120
C) €465
D) €255
35) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
100
2
€
250
3
€
1,500
If the value-added tax (VAT) rate is 15 percent, what would be the VAT over all stages of
production?
A) €90
B) €120
C) €465
D) €225
36) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
2
€
3
€
If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of
production?
A) €110
B) €120
C) €150
D) €225
37) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
2
€
3
€
If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of
production?
A) €64
B) €120
C) €465
D) €225
38) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
10
2
€
250
3
€
1,500
If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of
production?
A) €90
B) €120
C) €300
D) €225
39) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
2
€
3
€
If the value-added tax (VAT) rate is 25 percent, what would be the VAT over all stages of
production?
A) €187.50
B) €120
C) €150
D) €225
40) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
2
€
3
€
If the value-added tax (VAT) rate is 10 percent, what would be the VAT over all stages of
production?
A) €64
B) €36
C) €465
D) €225
41) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
1,000
2
€
2,000
3
€
3,000
If the value-added tax (VAT) rate is 15 percent, what would be the VAT over all stages of
production?
A) €390
B) €120
C) €450
D) €225
42) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
1,000
2
€
2,000
3
€
3,000
If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of
production?
A) €150
B) €600
C) €350
D) €225
43) Assume that a product has the following three stages of production:
Production Stage
Selling Price
1
€
800
2
€
960
3
€
15,000
If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of
production?
A) €64
B) €120
C) €2,808
D) €3,000
44) A value-added tax (VAT) is ________ national tax levied on the value added in the production
of a good (or service) as it moves through the various stages of production.
A) a direct
B) an indirect
C) a sales tax
D) none of the options
45) Tax evasion is more difficult under a VAT because
A) at each stage in the production process producers have an incentive to obtain documentation
from the previous stage that the VAT was paid in order to get the greatest tax credit possible.
B) customers can’t convince retailers to sell things without a receipt.
C) the cost of record keeping under a VAT system imposes an economic hardship on small
businesses.
D) none of the options
46) Which of the following are true?
A) A VAT fosters national saving.
B) An income tax is a disincentive to save because the returns from savings are taxed.
C) National tax authorities find that a VAT is easier to collect than an income tax because tax
evasion is more difficult.
D) All of the options are true.
47) Many economists prefer a VAT to an income tax because
A) these economists are pin heads with no real world experience.
B) an income tax provides a disincentive to work, whereas a VAT is a disincentive to unnecessary
consumption.
C) an income tax is an incentive to work, whereas a VAT is a disincentive to consumption.
D) all of the options
48) In a growing economy, the VAT would raise prodigious amounts of money
A) in a way almost invisible to tax-paying voters.
B) in a way obvious to tax-paying voters.
C) but would discourage savings.
D) none of the options