Parent and Junior form a non-unitary group of corporations.Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities, the group should:

Question

Quizplus · Accepted Answer

All of the options listed are effective income-shifting techniques for a non-unitary group. An intercompany loan with deductible interest from Junior to Parent will decrease Junior's taxable income and increase Parent's taxable income. Charging Junior an annual management fee will have a similar effect. Shifting high-cost operations from Parent to Junior will reduce Parent's taxable income and increase Junior's taxable income. By utilizing a combination of these techniques, the overall tax liabilities of the group can be reduced.

Parent and Junior Form a Non-Unitary Group of Corporations