Magellan Shipping generated $2.5 million of income from domestic operations and an additional $1.1 million from its only foreign subsidiary. Its tax rate is 35 percent on domestic income and 30 percent on foreign income. Compare the capital export and import neutrality methods of taxation. Which method requires the most in total taxes paid (by both units), and by how much?

Question

Quizplus · Accepted Answer

Under Capital Export Neutrality (CEN), the foreign income is taxed at the domestic rate of 35%, resulting in higher taxes compared to Capital Import Neutrality (CIN), which taxes foreign income at the foreign rate of 30%. The difference in taxes paid is $55,000.

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