Test bank International Finance MCQ(word)Chap 21

20) A ________ is a direct reduction of taxes whereas a ________ reduces the taxable income

before taxes.

A) foreign tax credit; domestic tax credit

B) tax deduction; tax credit

C) tax credit; tax deduction

D) none of the above

Answer: C

Topic: Tax Credits and Tax Deductions

Skill: Recognition

21) Tax credits are less valuable on a dollar -for-dollar basis than are tax-deductible expenses. Answer: FALSE

Topic: Tax Credits and Tax Deductions

Skill: Conceptual

Instruction 21.1:

Use the information to answer following question(s).

Rogue River Exporters USA has $100,000 of before tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%.

22) Refer to Instruction 21.1. If the U.S. has no bilateral trade agreement with the host country,

what is the total amount of income taxes Rogue River Exporters will pay? A) $25,000

B) $35,000

C) $51,250

D) $60,000

Answer: C

Topic: International Taxation

Skill: Analytical

23) Refer to Instruction 21.1. If the U.S. has a bilateral trade agreement with the host country that

calls for the total tax paid to be equal to the maximum amount that could be paid in the

highest taxing country, what is the total amount of income taxes Rogue River Exporters will pay to the host country, and how much will they pay in U.S income taxes on the foreign earned income?

A) $25,000; $10,000

B) $25,000; $26,250

C) $35,000; $0

D) None of the above

Answer: A

Topic: International Taxation

Skill: Analytical

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24) Refer to Instruction 21.1. If the U.S. treated the taxes paid on income earned in the host

country as a tax-deductible expense, then Rogue River's total U.S. corporate tax on the foreign earnings would be ________. A) $10,000

B) $26,250

C) $35,000

D) $51,250

Answer: B

Topic: International Taxation

Skill: Analytical

25) Refer to Instruction 21.1. If the U.S. treated the taxes paid on income earned in the host

country as a tax-credit, then Rogue River's total U.S. corporate tax on the foreign earnings would be ________. A) $51,250

B) $35,000

C) $26,250

D) $10,000

Answer: D

Topic: International Taxation

Skill: Analytical

26) Which of the following factors is not important for U.S. corporations for determining the

amount of foreign tax credit allowed for direct taxes paid on income in a foreign country? A) the Foreign corporate income tax rate

B) the U.S. corporate income tax rate

C) the foreign corporate dividend withholding tax rate

D) All of the above are important factors.

Answer: D

Topic: International Taxation

Skill: Recognition

27) Tax treaties typically result in ________ between the two countries in question.

A) lower property taxes for U.S. citizens overseas

B) elimination of differential tax rates

C) increased double taxation

D) reduced withholding tax rates

Answer: D

Topic: Tax Treaties

Skill: Recognition

28) The value -added tax is

A) similar to an ad valorem tax on imports.

B) a form of direct taxation on corporate income.

C) a form of national sales tax.

D) none of the above.

Answer: C

Topic: Value -added Tax Skill: Recognition

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29) Domestic tax neutrality means that

A) a dollar earned anywhere in the world by a U.S. corporation is taxed the same as if

earned in the U.S.

B) tax rates are neither regressive nor progressive.

C) foreign affiliates must neutralize their income by subtraction of foreign investment

credits.

D) all of the above.

Answer: A

Topic: Tax Neutrality

Skill: Conceptual

30) Some countries assess extremely low corporate income tax rates on foreign source income in

order to

A) attract tax haven affiliates of foreign multinationals.

B) boost the value of their domestic currency.

C) support higher taxes of their domestic companies.

D) none of the above.

Answer: A

Topic: International Tax Rates

Skill: Conceptual

31) Developing foreign markets can create shareholder value. Manipulating global tax payments

does not create shareholder value. Answer: FALSE

Topic: Shareholder Value

Skill: Conceptual

32) Poland has a corporate income tax rate that is higher than that in the United States by the

amount of 40% in Poland and 35% in the U.S. This differential mean that a U.S. parent operating with a subsidiary in Poland can realize an A) excess profit on their Polish investment.

B) excess foreign tax deficit.

C) excess foreign tax credit.

D) none of the above.

Answer: C

Topic: Excess Foreign Tax Credit

Skill: Recognition

33) Which of the following is NOT a disadvantage of the value -added tax? A) The tax may have an inflationary impact.

B) It is a regressive tax.

C) It increases the total tax burden.

D) All are disadvantages.

Answer: D

Topic: Value -added Tax Skill: Conceptual

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34) The purpose of a withholding tax on dividend income is to

A) raise the effective as rate of the local host country.

B) provide an incentive for MNEs to pay higher dividends to their parent companies.

C) obtain a minimum tax payment on the incomes of dividend income receipts.

D) encourage MNEs to reposition profits outside of their countries.

Answer: C

Topic: Withholding Tax

Skill: Conceptual

TABLE 21.1

Uses the information to answer following question(s).

MetroCity Designs Inc., located in Northern California, has two international subsidiaries, one located in the Ukraine, the other in Korea. Consider the information below to answer the next several questions.

35) Refer to Table 21.1. If MetroCity pays out 50% of its earnings from each subsidiary, what are

the additional U.S. taxes due on the foreign sourced income from the Ukraine and Korea respectively. A) Ukraine = $0; Korea = ($30,000) B) Ukraine = $100,000; Korea = $0 C) Ukriane$0; Korea = $66,250 D) None of the above

Answer: D

Topic: Foreign -source Taxes Skill: Analytical

36) Refer to Table 21.1. The additional U.S. taxes due on the repatriation of income from the

Ukraine to the United States, alone, assuming a 50% payout rate, is A) excess foreign tax credits of $110,000.

B) additional U.S. taxes due of $97,000.

C) additional U.S. taxes due of $36,500.

D) excess foreign tax credits of $18,500.

Answer: A

Topic: Foreign -source Taxes Skill: Analytical

37) Refer to Table 21.1. How much in additional U.S. taxes would be due if MetroCity averaged

the tax credits and liabilities of the two foreign units, assuming a 50% payout rate from each? A) $3,750

B) $13,750

C) $2,500 D) $0

Answer: C

Topic: Foreign -source Taxes Skill: Analytical

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