Assume a U.S. company is in a 45% marginal tax bracket. The company has found a small Caribbean island on which corporate income is taxed at only 5% and has opened a branch on
The island. If the company now has a patent worth $25 million a year that it transfers to the
Island branch, how much will it save a year in taxes?

Question

Quizplus · Accepted Answer

The company saves taxes by paying only 5% instead of 45% on $25 million. The tax savings is 40% of $25 million, which is $10 million.