International Financial Management 6th Edition by Sanjiv Eun, Cheol Resnick, Bruce Sabherwal

Exercise 3

The Docket Company of Asheville, NC USA is considering establishing an affiliate operation in the city of Wellington, on the south island of New Zealand. It is undecided whether to establish the affiliate as a branch operation or a wholly-owned subsidiary. New Zealand taxes income of both resident corporations and branch operations at a flat rate of 33 percent. It also withholds taxes at a rate of 15 percent on dividends paid by resident corporations to recipients in the United States. The United States has an income tax rate of 35 percent on income earned worldwide, but gives a tax credit for taxes paid to another country. Based on this information, is a branch or subsidiary the recommended form for the affiliate