978-0134472133 Chapter 15

Chapter 15

Multinational Tax Management

◼ Learning Objectives

1. Explore the tax principals and practice employed by governments around the globe

2. Examine how multinational firms manage their global tax liabilities

3. Analyze how Google has creatively repositioned its global profits for tax management

purposes

4. Evaluate the relative tax competitiveness of country tax environments globally

◼ Chapter Outline

I. Tax Principles and Practices

A. Tax Morality

B. Tax Neutrality

C. National Tax Environments

Worldwide Approach

Territorial Approach

Tax Deferral

D. Tax Treaties

E. Controlled Foreign Corporations

F. Tax Types

Direct Taxes

Indirect Taxes

II. Multinational Tax Management

A. Allocation of Debt and Earnings Stripping

B. Foreign Tax Credits and Deferral

C. Transfer Pricing

Fund Positioning Effect

Income Tax Effect

3. Tax Neutrality. What is tax neutrality? What is the difference between domestic neutrality

and foreign neutrality?

4. Worldwide versus Territorial. What is the difference between the worldwide and

territorial approaches to taxation?

5. Direct or Indirect. What is the difference between a direct tax and an indirect tax?

6. Tax Deferral. What is meant by tax deferral in the U.S. system of taxation? What is the

deferral privilege?

7. Value-Added Tax. What is a value-added tax, and how does it differ from an income tax?

8. Withholding Tax. What is a withholding tax, and why do governments impose them?

9. Tax Treaty. What is usually included within a tax treaty?

10. Active Versus Passive. What do the terms active and passive mean in the context of U.S.

taxation of foreign source income?

11. Tax Types. Taxes are classified based on whether they are applied directly to income—

direct taxes—or to some other measurable performance characteristic of the firm—indirect

taxes. Classify each of the following as a “direct tax,” an “indirect tax,” or something else:

12. Foreign Tax Credit. What is a foreign tax credit? Why do countries give credit for taxes

paid on foreign source income?

13. Earnings Stripping. What is earnings stripping, and what are some examples of how

multinational firms pursue earnings stripping?

14. Controlled Foreign Corporation. What is a controlled foreign corporation, and what is its

significance in global tax management?

15. Transfer Pricing. What is a transfer price and can a government regulate it? What

difficulties and motives does a parent multinational firm face in setting transfer prices?