Multinational Business Finance 13th Edition Test Bank Chapter 15

Unlock access to all the studying documents.

View Full Document

Multinational Business Finance, 13e (Eiteman/Stonehill/Moffett) Chapter 15

Multinational Tax Management 15.1 Tax Principles Multiple Choice

Question: 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 Answer:

Question: 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. Answer:

Question: 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 Answer:

Question: 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. Answer:

Question: 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

Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: 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%. Answer:

Question: The territorial approach to taxation policy is also termed the ________

approach. A) source B) ethical C) greedy D) location Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: 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 = ($30,0

Question: B) Ukraine = $100,000; Korea = $0 C) Ukraine = $0; Korea = $66,250 D) none

of the above Answer:

Question: 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. Answer:

Question: 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 Answer:

Question: 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% Answer:

Question: 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% Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: 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 Valleys total U.S. corporate tax

on the foreign earnings would be: A) $10,000. B) $26,250. C) $35,000. D) $51,250.

Answer:

Question: 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 Valleys total U.S. corporate tax on the foreign

earnings would be: A) $51,250. B) $35,000. C) $26,250. D) $10,000. Answer:

Question: 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 Answer:

Question: 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 Answer:

Question: ________ is the pricing of goods, services, and technology between related

companies. A) Among pricing B) Retail pricing C) Transfer pricing D) Wholesale pricing

Answer:

Question: The primary objective of multinational tax planning is to minimize the firms

worldwide tax burden. Answer:

Question: A country CANNOT have both a territorial and a worldwide approach as a

national tax policy. Answer:

Question: Tax treaties generally have the effect of increasing the withholding taxes

between the countries that are negotiating the treaties. Answer:

Question: A value-added tax has gained widespread usage in Western Europe, Canada, and

parts of Latin America. Answer:

Question: All indications are that the value-added tax will soon be the dominant form of

taxation in the U.S. Answer:

Question: 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. Answer:

Question: 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. Answer:

Question: The ideal tax should not only raise revenue efficiently but also have as few

negative effects on economic behavior as possible. Answer:

Question: The worldwide approach, also referred to as the residential or national approach

to tax policy, levies taxes on the income earned by firms that are incorporated in the host

country, regardless of where the income was earned (domestically or abroad). Answer:

Question: The territorial approach, also referred to as the source approach to tax policy,

levies taxes on the income earned by firms that are incorporated in the host country,

regardless of where the income was earned (domestically or abroad). Answer:

Question: Of the OECD 30 countries, most employ a worldwide approach to tax policy,

but a few, including the United States, use the worldwide approach. Answer:

Question: FEW governments rely on income taxes, both personal and corporate, for their

primary revenue source. Answer:

Question: Between 2006 – 2012, global corporate tax rates have trended upward. Answer:

Question: Tax credits are LESS valuable on a dollar-for-dollar basis than are deductible

expenses. Answer:

Question: Tax treaties typically result in reduced withholding tax rates between the two

signatory countries. Answer:

Question: Tax credits are less valuable on a dollar-for-dollar basis than are tax-deductible

expenses. Answer:

Question: The U.S. Internal Revenue Service can reallocate revenues and expenses

between parent corporations and their subsidiaries to more clearly reflect a proper

allocation of income. In such instances it is the responsibility of the corporation to prove

that the IRS has been arbitrary in its decision-making, thus establishing a “guilty until

proved innocent” tax approach. Answer:

Question: Tax haven subsidiaries of MNEs are categorically referred to as international

offshore financial centers. Answer:

Question: Explain the worldwide and territorial approaches of national taxation. The

authors state that the United States uses both approaches. How can this be? Give an

example of each taxation approach. Answer:

Question: What is a value-added tax? Where is this type of tax in wide usage? Why do you

suppose this form of taxation has NOT been widely accepted in the United States?

Answer: