Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3% and Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Question

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Each of the actions listed (charging an annual management fee, shifting high-cost operations, and executing an intercompany loan with deductible interest) are strategies that can be used by corporations to manage and potentially reduce their overall tax liabilities. By implementing these strategies, the group can take advantage of the different tax rates in a way that could lower the total taxes paid by the group. Charging management fees and interest on intercompany loans can shift profits from the higher-taxed corporation to the lower-taxed one, and shifting operations can also affect where and how much tax is paid based on the differing tax rates and the costs associated with those operations.

Parent and Minor Form a Non-Unitary Group of Corporations