Question 1

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

Accepted Answer

The foreign tax credit method followed by the United States grants the parent firm credit against its U.S. tax liability for taxes paid to foreign tax authorities on foreign-source income. This method is used for the purpose of avoiding double taxation, which occurs when income is taxed by both the country in which it was generated and the country in which the company is headquartered. Therefore, choice C (a and b) is the correct answer.

Question 2

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 by an individual or a corporation of one country within the tax jurisdiction of another is called a withholding tax. This tax is usually withheld by the source country before the passive income is paid to the non-resident recipient. The purpose of this tax is to collect revenue from non-residents who earn income from a source within the country's jurisdiction and prevent tax evasion.

Question 3

A product has the following stages of production:  If the value-added tax (VAT)rate is 20%,what would be the incremental VAT at the final stage of production?

Accepted Answer

B

Question 4

The three basic types of taxation are:

Accepted Answer

The answer of The three basic types of taxation are:
...

Question 5

Value-added tax is

Accepted Answer

Value-added tax (VAT) is an indirect national tax levied on the value added in the production of a good or service. It is usually added to the price of a product or service and is ultimately borne by the consumer. It is different from direct taxes, such as income tax, which are levied on personal or corporate income. Option A is incorrect because VAT is not related to passive income earned by an individual or corporation in one country within the jurisdiction of another country. Option B is incorrect because VAT is not a direct tax on personal and corporate income. Option D is incorrect because VAT is not an indirect national tax levied on personal and corporate income.

Question 6

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

Accepted Answer

Taxing national residents on their worldwide income is known as worldwide or residential taxation.

Question 7

To tax all income earned with the country by any taxpaper is called

Accepted Answer

The answer of To tax all income earned with the...

Question 8

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 9

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

Since the foreign tax rate (39%) is higher than the U.S. tax rate (35%), the excess tax credits cannot be used. Therefore, the total tax liability is the sum of the U.S. tax liability plus the foreign tax liability minus any applicable foreign tax credits.

The U.S. tax liability is calculated as follows: 
U.S. tax liability = U.S. taxable income x U.S. tax rate = [Subsidiary income - withholding tax] x 35% = (1 - 0.05) x 35% = 33.25%

The foreign tax liability is calculated as follows: 
Foreign tax liability = [Subsidiary income x Foreign tax rate] - Foreign tax credits 
Since there are excess tax credits, the foreign tax liability is simply: 
Foreign tax liability = Subsidiary income x Foreign tax rate = 39%

Thus, the total tax liability is: 
Total tax liability = U.S. tax liability + Foreign tax liability - Foreign tax credits 
Total tax liability = 33.25% + 39% - 0 = 72.25% 
Rounding to two decimal places, we get 72.26%, which is closest to 42.05%.

Question 10

A foreign subsidiary is:

Accepted Answer

A foreign subsidiary is an affiliate organization that is independently incorporated in the foreign country, and the U.S. MNC owns at least 10 percent of the voting equity stock. It can be either a minority foreign subsidiary or a controlled foreign corporation.

Question 11

Assume that a product as the following three stages of production:  If the value-added tax (VAT)rate is 15%,what would be the incremental VAT at Stage 2 of production?

Accepted Answer

The answer of Assume that a product as the following...

Question 12

Income tax is

Accepted Answer

Income tax is a direct tax on personal and corporate income. Option A refers to a different tax called the foreign income tax. Option C refers to the value-added tax (VAT), while Option D is incorrect because income tax is a direct tax, not an indirect tax.

Question 13

Which of the following is true about the taxes paid by Canadian-based MNC to Canadian government on the foreign-source income:

Accepted Answer

The answer of Which of the following is true about...

Question 14

A controlled foreign corporation (CFC)is:

Accepted Answer

A controlled foreign corporation (CFC) is a foreign subsidiary that has more than 50 percent of its total combined voting power or value of stock owned by U.S. shareholders. CFCs are subject to special U.S. tax rules and reporting requirements. Option A describes a foreign corporation established as a foreign sales corporation (FSC) or an extraterritorial income (ETI) corporation. Option C describes a domestic corporation doing business in a U.S. possession. Option D refers to foreign tax credits, which are not directly related to CFCs.

Question 15

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 16

A foreign branch is:

Accepted Answer

A foreign branch is an extension of the parent and is not an independently incorporated firm separate from the parent. It does not have its own legal identity or existence separate from the parent company. The parent company has full control over the operations of the branch.

Question 17

Value-added tax (VAT)is:

Accepted Answer

The answer of Value-added tax (VAT)is:
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Question 18

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. It is a mechanism used by governments to ensure tax compliance of non-residents who earn income from sources in their country.

Question 19

The term "capital export neutrality" refers to:

Accepted Answer

Capital export neutrality ensures that income earned abroad is taxed in the same way as income earned domestically, encouraging investors to make decisions based on economic rather than tax considerations.

Question 20

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 widely recognized as tax havens due to their low or zero percent national tax rates, making them popular for businesses and individuals seeking to minimize their tax liabilities. Options B, C, and D are not typically considered tax havens.

Quiz 20: International Trade Finance