Question 1

A "tax haven" country is one that has a low,or zero percent,national tax rates.Some of the countries that fall into this category are:

Accepted Answer

The countries listed in option A are commonly known as tax havens due to their low or zero percent national tax rates. The other options contain countries that do not typically fall under the category of tax havens.

Question 2

The three basic types of taxation are:

Accepted Answer

The three basic types of taxation are income tax, withholding tax, and value-added tax. These cover taxes on individual earnings, taxes withheld at source (like from employment income), and taxes added to the price of goods and services, respectively.

Question 3

A controlled foreign corporation (CFC)is:

Accepted Answer

A controlled foreign corporation (CFC) is a foreign subsidiary that is subject to U.S. tax rules because it is owned by U.S. shareholders who own more than 50 percent of the voting equity in the foreign corporation. The U.S. shareholders must include their share of the CFC's income on their U.S. tax returns, regardless of whether the income is actually distributed to them.

Question 4

A tax levied on passive income earned by an individual or a corporation of one country within the tax jurisdiction of another is called:

Accepted Answer

A tax levied on passive income earned in one country by an individual or a corporation of another country is known as withholding tax. The tax is withheld by the source country or the country where the income is generated, and it is paid to the country of the recipient. This tax is usually levied on dividends, interest, royalties, and other passive income earned by foreign residents or entities.

Question 5

Withholding tax is:

Accepted Answer

Withholding tax is a tax levied on passive income earned by an individual or corporation of one country within the jurisdiction of another country. This tax is withheld by the payer of the income (such as a bank or employer) and then remitted to the government of the country where the income was earned. Examples of passive income subject to withholding tax include dividends, interest, and royalties.

Question 6

A foreign subsidiary is:

Accepted Answer

The answer of A foreign subsidiary is:
...

Question 7

Which of the following is true for VAT (in Europe)and GST (in Canada)?

Accepted Answer

Both VAT in Europe and GST in Canada are not applicable for export goods. These taxes are designed to be paid by the final consumer within the country, and goods that are exported are generally exempt to avoid double taxation in the destination country.

Question 8

To tax national residents of a country on their worldwide income is called:

Accepted Answer

Taxing national residents on their worldwide income is referred to as worldwide or residential taxation. This type of taxation occurs in countries that follow a residence-based tax system where residents are taxed on their income, regardless of where it is earned. This is in contrast to source-based taxation, where income is only taxed in the country where it was earned.

Question 9

A product has the following stages of production: $\begin{array}{ll}
 \text {Production  }& \text { Selling  }\
\text { Stage } & \text { Price } \
1 & \text { EUR500 } \
2 & \text { EUR1,500 } \
3 & \text { EUR2,000 }
\end{array}$ If the value-added tax (VAT)rate is 20%,what would be the incremental VAT at the final stage of production?

Accepted Answer

The answer of A product has the following stages of...

Question 10

In Canada:

Accepted Answer

The answer of In Canada:
...

Question 11

A foreign branch is:

Accepted Answer

A foreign branch is an extension of the parent company and is not a separate legal entity. The parent company is fully responsible for the liabilities and profits of the foreign branch.

Option B refers to a subsidiary, not a branch.
Option C differentiates between a minority foreign subsidiary and a controlled foreign corporation, which are both types of subsidiaries, not branches.

Question 12

A product sells in the first stage of production for EUR600,the second stage of production for EUR 1,400 and the third stage of production for EUR 1,700.If the value-added tax (VAT)rate is 15%,what would be the total VAT?

Accepted Answer

Total VAT:EUR1700*0.15 = EUR255

Question 13

The term "capital export neutrality" refers to:

Accepted Answer

Capital export neutrality ensures that income earned abroad is taxed at the same rate as domestic income, encouraging investors to make decisions based on economic factors rather than tax considerations.

Question 14

Two fundamental policy objectives in international taxation are:

Accepted Answer

Tax neutrality refers to the objective of ensuring that tax policies do not distort economic behavior by favoring one activity or industry over another. National treatment refers to the idea that foreign businesses and investments should be taxed no less favorably than domestic ones. These two objectives are often seen as complementary and provide a framework for developing fair and efficient international tax policies. Tax revenues and international treatment are also important considerations, but are secondary to the principles of tax neutrality and national treatment.

Question 15

If country A imposes tax on interest payment received by foreign residents,such tax is known as:

Accepted Answer

Imposing tax on interest payments received by foreign residents is known as withholding tax, which is a type of tax deducted at the source of income. Direct tax refers to taxes that are levied directly on individuals or organizations, while foreign income tax and capital export tax are not applicable to this scenario.

Question 16

The foreign tax credit method followed by the United States is:

Accepted Answer

The foreign tax credit method followed by the United States is to grant the parent firm credit against its U.S. tax liability for taxes paid to foreign tax authorities on foreign-source income. This is done to prevent double taxation of income earned by a company both in the U.S. and in foreign countries. It allows multinational companies to take a credit for foreign taxes paid against their U.S. tax liability, reducing their overall tax burden.

Question 17

Assume that a product as the following three stages of production: $\begin{array}{ll}
 \text {Production  }& \text { Selling  }\
\text { Stage } & \text { Price } \
1 & \text { EUR600 } \
2 & \text { EUR1,400 } \
3 & \text { EUR1,700 }
\end{array}$ If the value-added tax (VAT)rate is 15%,what would be the incremental VAT at Stage 2 of production?

Accepted Answer

The incremental VAT at Stage 2 is calculated based on the difference in selling price between Stage 2 and Stage 1, which is EUR1,400 - EUR600 = EUR800. The VAT at 15% on this difference is 0.15 * EUR800 = EUR120.

Question 18

When excess tax credits go unused,the foreign tax liability for a branch is greater than the corresponding U.S.tax liability when the foreign income tax rate is greater than the U.S.rate.Calculate the total tax liability for a wholly-owned subsidiary when excess tax credits cannot be used in a country given: U.S.tax rate = 35%
Foreign tax rate = 39%
Withholding tax rate = 5%

Accepted Answer

Total tax liability:= foreign income tax rate + withholding tax rate - (foreign income tax rate × withholding tax rate)= 0.39 + 0.05 - (0.39 × 0.05) = 42.05%

Question 19

To tax all income earned within the country by any taxpayer is called:

Accepted Answer

Territorial or source taxation refers to taxing only the income earned within the country's borders, regardless of the taxpayer's residence.

Question 20

Value-added tax (VAT)is:

Accepted Answer

VAT is an indirect tax that is imposed on the value added to a good or service as it moves through the supply chain. It is levied at each stage of production and distribution, and ultimately, it is passed on to the end consumer.

Quiz 20: International Tax Environment