Bacon Signs 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, Bacon should pay taxes at a rate of ________ in the country of incorporation.
A) 75%.
B) 62.5%.
C) 0%.
D) 50%.

Question

Quizplus · Accepted Answer

Since Bacon Signs Inc. is based in a country with a territorial approach to taxation, it would not be taxed on income earned outside of its home country. Therefore, it should pay 0% tax in its country of incorporation on the income earned abroad.