True / False
1. North American and Western European countries generally accept the modern traditional theory of the taking of
private property as provided under the “due process” clause of the U.S. Constitution.
a. True
b. False
2. Classical theories on the taking of property of foreign citizens by governments were originally developed to protect
the interests of European investments abroad.
a. True
b. False
3. Under the laws of most legal systems, governments do not have the authority to take private property for public use.
a. True
b. False
4. The modern traditional theory recognizes the sovereign’s right to nationalize foreign–owned property but places
conditions on the exercise of that right.
a. True
b. False
5. The term nationalization usually applies to the expropriation of an entire industry or natural resource of a nation.
a. True
b. False
6. Investors receiving compensation for the nationalization of property in a foreign country generally obtain payment in
United States dollars, thus avoiding any currency risk.
a. True
b. False
7. Insurance is available from the U.S. AID to U.S. firms against the expropriation of their property by a foreign
government.
a. True
b. False
8. OPIC insurance does not provide coverage against the loss of assets by U.S. firms in the case of the nationalization
of farms or factories held in a foreign country.
a. True
b. False
9. OPIC insurance is provided to U.S. firms operating abroad by private American insurance companies.
a. True
b. False
10. An American firm that builds a factory abroad for the building of component parts to be shipped back to the United
States does not qualify for OPIC insurance.
a. True
b. False
11. OPIC insurance is primarily intended to protect U.S. investments in Japan, Canada and Western Europe.
a. True
b. False
12. In the case of nationalization, “adequate” compensation is defined as fair market value minus accumulation of
depreciation.
a. True
b. False
13. In the case of nationalization, the party whose property has been subject to a taking may elect to receive either the
fair market value as estimated by a government agency or the saleable value as identified by independent valuation
specialists.
a. True
b. False
14. U.S. multinational corporations are generally safer in building a factory in a foreign country that has entered into an
investment treaty with the United States than in a country that has no such treaty.
a. True
b. False
15. If a U.S. company chooses to establish a wholly–owned subsidiary abroad, it faces less potential vicarious liability
because it is separated from the branch.
a. True
b. False
16. All foreign nations permit foreign majority ownership of critical industries to the security of the host country.
a. True
b. False
17. Virtually every foreign country prohibits entities controlled by foreigners in a number of particularly sensitive sectors.
a. True
b. False
18. Once a foreign firm creates a subsidiary abroad under its control, it risks waiving its protection under bilateral
investment treaties.
a. True
b. False
19. The creation of a foreign subsidiary has few tax consequences to the foreign firm.
a. True
b. False
20. As a general rule, firms are responsible for the torts committed by their foreign subsidiaries under the alien tort
claims act but not by their foreign branch offices.
a. True
b. False
21. The establishment of a branch overseas will have tax consequences as ordinary business income under U.S. tax law.
a. True
b. False
22. The United States does not tax foreign subsidiaries on the income they earn abroad.
a. True
b. False
23. Incontrovertibility risk may hinder a U.S. investor in a foreign country from trading the foreign currency back into
U.S. dollars.
a. True
b. False
24. An example of an active investment is the licensing of technology to a foreign firm.
a. True
b. False
25. Because passive investments create the least risk of foreign control, they are the least regulated of foreign
investments.
a. True
b. False
26. Passive investment in less-developed countries is similar to other developed countries since equity shares are easily
transferable worldwide.
a. True
b. False
27. A foreign investor may enter into a joint venture by combining with a national of a host country to create a new
entity or by acquiring a portion of an existing local entity.
a. True
b. False
28. The “transfer pricing” provision attempts to identify the taxable income had the transaction been between unrelated
parties dealing at arm‘s length.
a. True
b. False
29. Simplification and centralization of foreign investment pre-approval procedures have become commonplace in
developing countries in recent years.
a. True
b. False
30. The precise structure of inactive investment in a foreign nation depends largely on the treatment of the structure
under the tax laws of the host country and the U.S.
a. True
b. False
31. One tax issue that presents no problem for a U.S. investor is the question of crediting taxes it has paid to a foreign
country against taxes it would have to pay the U.S. on its federal return.
a. True
b. False
32. Under U.S. law, corporations are taxed on all income, including income from foreign sources that is repatriated back
to the United States.
a. True
b. False
33. Dividends paid from a foreign subsidiary to the U.S. parent company are not taxable under U.S. law.
a. True
b. False
34. Artificially manipulated pricing between joint venture corporations is known as transfer pricing.
a. True
b. False
35. In order to qualify as a foreign sales corporation under U.S. tax law, the company must have management outside of
the United States in one of the less developed countries approved by the Department of Treasury.
a. True
b. False
36. Even if an investor proposes to bring a desired industry to a soft–currency nation, it will generally not be possible to
get currency exchange rights (preferential access to hard currency).
a. True
b. False
37. The essential problem in soft-currency countries is that despite the sufficient amount of hard currency available, the
excessive bureaucratic and regulatory framework makes gaining access to that currency very difficult.
a. True
b. False
38. A host country that progressively limit the exercise of ownership rights by a foreign firm is progressive
nationalization.
a. True
b. False
39. Under the Foreign Sovereign Immunities Act, the United States courts have jurisdiction over disputes between U.S.
firms and the foreign states that expropriated assets without market value compensation.
a. True
b. False
Multiple Choice
40. Often, investors must create legal structures for their investment that will maximize the foreign venture’s U.S. dollar
resources. These might include:
a. Borrowing start-up money in local currency.
b. Buying supplies and services locally, using local currency.
c. Building unitary index adjustment factors into contractual payment terms.
d. All of the above.
41. An investment in which the investor limits its involvement to providing equity capital in an enterprise managed by
another in hope of a profitable return is called a(n):
a. Active investment.
b. Leveraged investment.
c. Passive investment.
d. Inactive investment.
42. World Motors assembles automobiles in the United States from engines produced by its subsidiary corporation in
Country X. In order to shift its tax liability, World Motors instructs the subsidiary in Country X to overvalue its
invoice price of the engines. This is known as:
a. Price discrimination.
b. Foreign source income.
c. Transfer pricing.
d. Taxation pricing.