Question 1

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

When establishing a new corporation for domestic expansion, the cash funding requirements will typically be higher than establishing a corporate division. This is because a new corporation involves creating a separate legal entity and may require additional expenses such as legal fees, accounting fees, and obtaining necessary licenses and permits. Additionally, if the expansion activity incurs substantial start-up losses, the financial burden will fall solely on the new corporation rather than being shared by the founding corporation. Therefore, B is the correct statement. A is false because establishing a new corporation is typically more expensive. C is false because the obligations of a new division can have an impact on the founding corporation. D is false because the use of start-up losses can also be applied to a corporate division, not just a new corporation.

Question 2

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 acceptable methods for adopting a reasonable transfer price between a Canadian parent and its foreign subsidiary corporations are the comparable arm's-length selling price method, cost-plus method, and resale price method. The profit-margin method may not be appropriate as it relies on the profit margins of similar companies, which may not be comparable to the foreign subsidiary. The lowest tax rate method is not an acceptable method as it may result in tax avoidance and is not a fair valuation of the goods or services being transferred.

Question 3

Foreign Co. would qualify as a foreign affiliate, therefore, there is no tax on the dividends received by Andy's corporation. The only tax liability is the withholding tax at source.

Accepted Answer

3.&#10;

Question 4

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

The answer of The Running Shoe Corp. is a Canadian...

Question 5

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

In the Canada-U.S. tax treaty, a 'permanent establishment' is defined as a fixed place of business through which the business of an enterprise is wholly or partly carried on, including a place of management, a branch, an office, a factory, a workshop, and a mine, but does not include a storage facility that is solely used for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise. Therefore, the correct answer is C as it is specifically excluded from the definition of a permanent establishment.

Question 6

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.

Accepted Answer

The answer of The Sweater Corp. is a Canadian corporation...

Deck 20: Domestic and International Business Expansion