Question 1

The Sweater Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a wholly-owned foreign subsidiary corporation in another country.Which of the following is FALSE?

A)The subsidiary will be subject to taxes in the foreign country.
B)The subsidiary's profits will be included in the Canadian corporation's worldwide income.
C)Dividends received by the Canadian corporation from the foreign subsidiary are excluded from the Canadian corporation's taxable income.
D)Dividends received by the Canadian corporation from the foreign subsidiary are most often subject to a withholding tax in the foreign jurisdiction.

B

Accepted Answer

B

Question 2

The Running Shoe Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a branch in a foreign country.Which of the following is FALSE?&#10;A)The profits of the branch will be subject to income tax in the foreign country.&#10;B)The branch profits will be included in the Canadian corporation's worldwide income.&#10;C)A foreign tax credit can reduce the Canadian taxes payable.&#10;D)If the foreign country has a lower tax rate, a tax benefit will be recognized.

Accepted Answer

If the foreign country has a lower tax rate, it does not automatically result in a tax benefit for the Canadian corporation, as the profits will still be included in the Canadian corporation's worldwide income and subject to Canadian tax, potentially offset by a foreign tax credit.

Question 3

In the Canada-U.S.tax treaty,the definition of a 'permanent establishment' does not include&#10;A)a place of management.&#10;B)a factory.&#10;C)a storage facility.&#10;D)an office.

Accepted Answer

The definition of a 'permanent establishment' in the Canada-U.S. tax treaty typically includes places of management, factories, and offices as locations where business activities are conducted, thus establishing a taxable presence in the country. However, a storage facility, by itself, is not usually considered a permanent establishment under this treaty, as it is generally used for the storage, display, or delivery of goods without involving significant business operations or authority.

Question 4

The Great Big Company (GBC)is a CCPC located in Saskatchewan.GBC owns a foreign subsidiary,The Little Company (TLC).GBC manufactures electronic component parts which are then sold to TLC for assembly.GBC is subject to a 27% corporate tax rate and TLC is subject to a 19% corporate tax rate.Fiona Big,the CEO of GBC,has mentioned that due to the lower tax rate in the foreign country,the profits of GBC could be shifted to TLC by adjusting the selling price of the component parts.
Required:

A)Can Fiona Big adjust the selling price of the component parts in order to take advantage of the lower tax rate? Why or why not?
B)What are three methods used to establish transfer prices for non-arm's length transactions?

Accepted Answer

The answer of The Great Big Company (GBC)is a CCPC...

Question 5

Which of the following statements is TRUE concerning domestic expansion of a business?&#10;A)Cash funding requirements will be lower to establish a new corporation than a corporate division if the expansion activity incurs substantial start-up losses.&#10;B)Cash funding requirements will be higher to establish a new corporation than a corporate division if the expansion activity incurs substantial start-up losses.&#10;C)Obligations of a new division will have no impact on the founding corporation.&#10;D)The main advantage of incorporating an expansion activity is the use of start-up losses from the new corporation against income from the founding corporation.

Accepted Answer

Establishing a new corporation for domestic expansion would have higher cash funding requirements than creating a corporate division if significant start-up losses are expected. This is because a new corporation would require its own resources and funding separate from the founding corporation. The obligations of a new division can still impact the founding corporation, and incorporating for expansion activity does offer the advantage of using start-up losses from the new corporation against income from the founding corporation, but this is not the main advantage.

Question 6

Andy Griffin would like to invest $150,000 in Foreign Co.,which was founded and operates in a foreign country.This investment would give Andy 25% ownership of the company.An annual dividend of $15,000 (Canadian funds)is anticipated.
Andy's personal marginal tax rate is 45% on regular income,28% on eligible dividends,and 37% on non-eligible dividends.The foreign company is subject to a tax rate of 38% on all business income.Any dividends received by Andy,personally,will be subject to a 15% withholding tax.
Required:
1)Determine the total tax liability (foreign and Canadian)that Andy will be subject to upon receiving dividends from Foreign Co.
2)How would your answer in part 1 change if Andy established a Canadian holding company to purchase the shares,(subject to a 5% withholding tax on dividends received)?
3)What would Andy's after-tax proceeds be if he received eligible dividend income from the holding company?

Accepted Answer

The answer of Andy Griffin would like to invest $150,000...

Question 7

Which of the following lists are acceptable methods for adopting a reasonable transfer price between a Canadian parent and its foreign subsidiary corporations?&#10;A)Comparable arm's-length selling price method; cost-plus method; resale price method&#10;B)Cost-plus method; resale price method; profit-margin method&#10;C)Lowest tax rate method; resale price method; comparable arm's-length selling price method&#10;D)Comparable arm's-length selling price method; lowest tax rate method; profit-margin method

Accepted Answer

The comparable arm's-length selling price method, cost-plus method, and resale price method are all acceptable methods for adopting a reasonable transfer price according to the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The profit-margin method and lowest tax rate method are not considered acceptable by the OECD.

Deck 20: Domestic and International Business Expansion