Suppose That the Corporate Income Tax Rate Is 60 Percent

Suppose that the corporate income tax rate is 60 percent in Germany and 35 percent in the U.S. If a German firm had a wholly owned subsidiary in the U.S., then which of the following statements would be true?

A) The firm would charge the American subsidiary high prices on anything purchased from the parent firm in Germany.
B) The firm would charge the American subsidiary as low a price as it could
Justify to the German tax authorities.
C) The firm would never sell anything to the American subsidiary because of tax complications involved in these types of transactions.
D) The firm would allocate as much as possible of the firm's activities such as research and development to the American subsidiary.