Jensen Optimetrics Inc. is based in a country with a territorial approach to taxation but generates 100% of its income in a country with a worldwide approach to taxation. The tax rate in the country of incorporation is 25%, and the tax rate in the country where they earn their income is 50%. In theory, and barring any special provisions in the tax codes of either country, Jensen should pay taxes at a rate of ________.
A)75%
B)62.5%
C)0%
D)50%

Question

Quizplus · Accepted Answer

Jensen Optimetrics Inc. is based in a country with a territorial approach to taxation, which means it only pays taxes on income earned within that country. However, since the company generates 100% of its income in a country with a worldwide approach to taxation, it will be subject to taxes in that country at a rate of 50%. Therefore, Jensen should not pay any taxes in its country of incorporation, resulting in an effective tax rate of 0%.