If the portions of the firm's foreign operations in higher-tax-rate countries grew more rapidly than foreign operations in lower-tax-rate countries, the company may seek out more tax effective ways of operating abroad through all of the following means except :
A) Assess whether transfer prices or cost allocations can be adjusted to shift income from high-tax-rate to low-tax-rate jurisdictions.
B) Shift from domestic to foreign borrowing to increase deductions for interest against foreign-source income.
C) Shift from debt to equity financing of foreign operations to increase interest deductions against foreign-source income.
D) Shift some operations, like marketing, to the United States where the average tax rate is lower.

Question

Quizplus · Accepted Answer

Shifting from debt to equity financing would decrease interest deductions, not increase them, as interest is deductible while dividends are not.

If the Portions of the Firm's Foreign Operations in Higher-Tax-Rate