Ch21 Complete Test Bank International Tax Environment and

Student name:__________

1) The two main objectives of taxation are

A) tax neutrality and tax equity.
B) complexity and revenue.
C) social engineering and tax equity.
D) progressive taxation and tax neutrality.

2) The three basic types of taxation are

A) income tax, withholding tax, and value-added tax.
B) income tax, withholding tax, and business tax.
C) withholding tax, value-added tax, and corporate tax.
D) personal tax, corporate tax, and operating tax.

3) Tax neutrality is determined

A) by one criterion.
B) by two criteria.
C) by three criteria.
D) by four criteria.

4) Tax neutrality is determined by three criteria: which of the following doesn't belong?

A) Capital-export neutrality
B) Capital-import neutrality
C) National neutrality
D) Income neutrality

5) Tax neutrality

A) has its foundations in the principles of economic efficiency and equality.
B) can be a difficult principle to apply in practice.
C) is determined by three criteria: capital export neutrality, capital import neutrality and national neutrality.
D) all of the options

6) The idea that an ideal tax should be effective in raising revenue for the government but not have any negative effects on the economic decision-making process of the taxpayer is referred to as

A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) none of the options

7) The idea that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned is referred to as

A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) none of the options

8) Capital-export neutrality

A) is a goal based on worldwide economic efficiency.
B) is an example of Mercantilism.
C) is based on host country economic efficiency.
D) is based on MNC home country economic efficiency.

9) The idea that the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same regardless of the country in which the MNC is incorporated and the same as that placed on domestic firms is earned is referred to as

A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) none of the options

10) Capital-export neutrality

A) is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer.
B) requires that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned.
C) implies that the tax burden a host country imposes on the foreign subsidiary of the MNC should be the same regardless of which country the MNC is incorporated and the same as that placed on domestic firms.
D) none of the options

11) National neutrality

A) is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer.
B) requires that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned.
C) implies that the tax burden a host country imposes on the foreign subsidiary of the MNC should be the same regardless of which country the MNC is incorporated and the same as that placed on domestic firms.
D) none of the options

12) Capital-import neutrality

A) is the criterion that an ideal tax should be effective in raising revenue of the government and not have any negative effects on the economic decision-making process of the taxpayer.
B) requires that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned.
C) implies that the tax burden a host country imposes on the foreign subsidiary of the MNC should be the same regardless of which country the MNC is incorporated and the same as that placed on domestic firms.
D) none of the options

13) The term "capital-import neutrality" refers to

A) the criterion that an ideal tax should be effective in raising revenue for the government and not have any negative effects on the economic decision-making process of the taxpayer.
B) the fact that taxable income is taxed in the same manner by the taxpayer's national tax authority regardless of where in the world it is earned.
C) the criterion that the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same regardless in which country the MNC is incorporated and the same as that placed on domestic firms.
D) the underlying principle that all similarly situated taxpayers should participate in the cost of operating the government according to the same rules.

14) The criteria of tax neutrality: capital-export neutrality, capital-import neutrality and national neutrality

A) are all consistent with one another.
B) are not always consistent with one another.
C) are all identical with one another.
D) none of the options

15) Implementing capital-import neutrality means that

A) a sovereign government follows the taxation policies of foreign tax authorities on the foreign-source income of its resident MNCs.
B) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same regardless of the country in which the MNC is incorporated.
C) the tax burden a host country imposes on the foreign subsidiary of an MNC should be the same as that placed on domestic firms.
D) all of the options

16) Tax equity means that

A) similarly situated taxpayers should participate in the cost of operating the government according to the same rules.
B) regardless of the country in which an affiliate of an MNC earns taxable income, the same tax rate and tax due date apply.
C) a dollar earned by a foreign affiliate is taxed under the same rules as a dollar earned by a domestic affiliate of the MNC.
D) all of the options

17) The underlying principle of tax equity is that

A) all similarly situated taxpayers should participate in the cost of operating the government according to the same rules.
B) all similarly situated taxpayers should participate in the cost of operating the government on an equal basis.
C) none of the options

18) If a dollar earned by a foreign affiliate is taxed under the same rules as a dollar earned by a domestic affiliate of the MNC, then we have achieved

A) capital-export neutrality.
B) capital-import neutrality.
C) national neutrality.
D) tax equity.

19) The organizational form of an MNC can affect the timing of a tax liability. This means

A) the principle of tax equity might be violated.
B) as long as, regardless of the country in which an affiliate of an MNC earns taxable income, the same tax rates apply, then the tax due date doesn't matter.
C) tax timing will even out over a reporting cycle, so there is no big deal here.
D) none of the options

20) There are three basic types of taxation that national governments throughout the world use:

A) income tax, withholding tax, and value-added tax.
B) property tax, wealth tax, and death tax.
C) import quotas, duties, and tariffs.
D) tariffs, ad valorem taxes, and income taxes.

21) An income tax is defined in your textbook as

A) a direct tax.
B) an indirect tax.
C) being collected with a withholding tax.
D) none of the options

22) Which statement is false?

A) Active income is defined as income that results from production by the firm or individual or from services that have been provided.
B) Passive income includes dividends and interest income, and income from royalties, patents, or copyrights paid to the taxpayer.
C) A withholding tax is a tax levied on passive income earned by an individual or corporation of one country within the tax jurisdiction of another country.
D) The current marginal U.S. income tax rate is positioned towards the lower end of the rates assessed by the majority of other countries.

23) The current marginal U.S. income tax rate is positioned

A) pretty well in the middle of the rates assessed by the majority of other countries.
B) towards the upper end of the rates assessed by the majority of other countries.
C) towards the lower end of the rates assessed by the majority of other countries.
D) none of the options

24) A withholding tax is defined in your textbook as

A) the money that the government takes for every worker's paycheck.
B) social security taxes.
C) a tax levied on income earned by an individual (or corporation) of one country within the tax jurisdiction of another county.
D) a tax levied on passive income earned by an individual (or corporation) of one country within the tax jurisdiction of another county.

25) The purpose of a withholding tax

A) is to assure the local tax authority that it will receive the tax due on the active income earned within its tax jurisdiction.
B) is to assure the local tax authority that it will receive the tax due on the passive income earned within its tax jurisdiction.
C) is to assure the local tax authority that it will receive the tax due on all income earned within its tax jurisdiction.
D) none of the options

26) A withholding tax is

A) an indirect tax.
B) a direct tax.
C) both a direct and an indirect tax.
D) none of the options

27) Withholding tax rates imposed through tax treaties are

A) bilateral.
B) multilateral.
C) netted.
D) none of the options

28) The United States withholds __________ of passive income from taxpayers that reside in countries with which it does not have withholding tax treaties.

A) 10 percent
B) 20 percent
C) 30 percent
D) 40 percent

29) A withholding tax

A) is borne by a taxpayer who did not directly generate the income that serves as the source of the passive income.
B) is a direct tax on workers.
C) assures the local tax authority that it will receive the tax due on the passive income earned within its tax jurisdiction.
D) Both A & C are correct.

30) Many countries have tax treaties with one another. These generally specify

A) the withholding tax rate applied to various types of passive income.
B) that withholding tax rates imposed through tax treaties are bilateral.
C) the two countries agree as to what tax rates apply to various categories of passive income.
D) all of the options

31) Value-added tax (VAT) is

A) a direct national tax levied on the value added in the production of a good (or service) as it moves through various stages of production.
B) an indirect national tax levied on the value added in the production of a good (or service) as it moves through various stages of production.
C) the equivalent of imposing a national sales tax.
D) Both B & C are correct.

32) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 15 percent, what is the incremental VAT at Stage 2 of production?

A) €75
B) €120
C) €210
D) €255

33) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 15 percent, what would be the VAT over all stages of production?

A) €90
B) €120
C) €465
D) €255

34) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 15 percent, what would be the VAT over all stages of production?

A) €90
B) €120
C) €465
D) €225

35) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of production?

A) €110
B) €120
C) €150
D) €225

36) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of production?

A) €64
B) €120
C) €465
D) €225

37) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of production?

A) €90
B) €120
C) €300
D) €225

38) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 25 percent, what would be the VAT over all stages of production?

A) €187.50
B) €120
C) €150
D) €225

39) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 10 percent, what would be the VAT over all stages of production?

A) €64
B) €36
C) €465
D) €225

40) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 15 percent, what would be the VAT over all stages of production?

A) €390
B) €120
C) €450
D) €225

41) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of production?

A) €150
B) €600
C) €350
D) €225

42) Assume that a product has the following three stages of production:

If the value-added tax (VAT) rate is 20 percent, what would be the VAT over all stages of production?

A) €64
B) €120
C) €2,808
D) €3,000

43) A value-added tax (VAT) is __________ national tax levied on the value added in the production of a good (or service) as it moves through the various stages of production.

A) a direct
B) an indirect
C) an income tax
D) none of the options

44) Tax evasion is more difficult under a VAT because

A) at each stage in the production process producers have an incentive to obtain documentation from the previous stage that the VAT was paid in order to get the greatest tax credit possible.
B) customers can't convince retailers to sell things without a receipt.
C) the cost of record keeping under a VAT system imposes an economic hardship on small businesses.
D) none of the options

45) Which of the following are true?

A) A VAT fosters national saving.
B) An income tax is a disincentive to save because the returns from savings are taxed.
C) National tax authorities find that a VAT is easier to collect than an income tax because tax evasion is more difficult.
D) All of the options are true.

46) Many economists prefer a VAT to an income tax because

A) these economists are pin heads with no real world experience.
B) an income tax provides a disincentive to work, whereas a VAT is a disincentive to unnecessary consumption.
C) an income tax is an incentive to work, whereas a VAT is a disincentive to consumption.
D) all of the options

47) In a growing economy, the VAT would raise prodigious amounts of money

A) in a way almost invisible to tax-paying voters.
B) in a way obvious to tax-paying voters.
C) but would discourage savings.
D) none of the options

48) Fundamentally, there are two types of tax jurisdiction.

A) The worldwide and the territorial
B) The residential and the visiting
C) The passive and the active income
D) The earned and the unearned

49) The worldwide method of declaring a national tax jurisdiction

A) is to tax national residents of the country on their worldwide income no matter in which country it is earned.
B) is to tax all income earned within the country by any taxpayer, domestic or foreign.
C) is to tax national residents of the country on their domestic income but not foreign-earned income.
D) none of the options

50) The worldwide method of declaring a national tax jurisdiction

A) is also known as the residential method.
B) is to tax national residents of the country on their worldwide income no matter in which country it is earned.
C) is different from the territorial method of declaring a national tax jurisdiction.
D) all of the options

51) The territorial method of declaring a national tax jurisdiction is to

A) tax all income earned within the country by any taxpayer, domestic or foreign.
B) tax national residents of the country on their worldwide income no matter in which country it is earned.
C) also known as the residential method.
D) none of the options

52) Affiliates of foreign MNCs are taxed on the income earned in the source country under

A) the territorial method of declaring a national tax jurisdiction.
B) the source method of declaring a tax jurisdiction.
C) both of the options
D) none of the options

53) Under the territorial method of declaring a national tax jurisdiction

A) the possibility of double taxation exists if the parent county of a foreign affiliate also levies a tax on worldwide income.
B) tax is levied on all income earned within the country by any taxpayer, domestic or foreign.
C) tax is levied on foreign residents of the country on their home-country income but not foreign-earned income.
D) none of the options

54) The typical approach to avoiding double taxation is

A) for a nation to grant the parent firm credit against its domestic tax liability for taxes paid to foreign tax authorities on foreign-source income.
B) for a nation not to tax foreign-source income of its national residents.
C) for a company to use both worldwide and the territorial methods.
D) none of the options

55) The foreign tax credit method followed by the United States on many types of foreign-source income is

A) to grant the parent firm credit against its U.S. tax liability for taxes paid to foreign tax authorities on foreign-source income.
B) in place for the purpose of avoiding double taxation.
C) to grant the parent firm credit against its U.S. tax liability for taxes paid to foreign tax authorities on foreign-source income, and is in place for the purpose of avoiding double taxation.
D) none of the options

56) A direct foreign tax credit is

A) computed for direct taxes paid on active foreign-source income of a foreign branch of a U.S. MNC.
B) computed on the indirect withholding taxes withheld form passive income distributed by the foreign subsidiary to the U.S. parent.
C) computed for income taxes deemed paid by the subsidiary.
D) Both A & B are correct.

57) In a given year, the U.S. IRS places an overall limitation applied to foreign tax credits.

A) The overall limitation is limited to the amount of tax due on the foreign-source income.
B) The overall limitation is limited to the amount of tax actually paid during the tax year on the foreign-source income.
C) The overall limitation is limited to the amount of tax that would have been due on the foreign-source income if it had been earned in the United States.
D) none of the options

58) In a given year, the U.S. IRS places an overall limitation applied to foreign tax credits.

A) the maximum tax credit is figured on world-wide foreign-source income; losses in one country can offset profits in another.
B) the maximum tax credit is figured on foreign-source income in each country; losses in one country cannot offset profits in another.
C) the overall limitation is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States.
D) Both A & C are correct.

59) In a given year, the U.S. IRS places an overall limitation applied to foreign tax credits.

A) The maximum tax credit is figured on world-wide foreign-source income; losses in one country can offset profits in another.
B) Value-added taxes paid cannot be included in determining the amount of the foreign tax credit.
C) The overall limitation is limited to the amount of tax that would be due on the foreign-source income if it had been earned in the United States.
D) all of the options

60) Countries differ in how they tax foreign-source income of their domestic MNCs.

A) Therefore, different forms of structuring a multinational organization within a country can result in different tax liabilities for the firm.
B) However, due to tax treaties and foreign tax credits, this is not an issue for a U.S.-based MNC.
C) But all countries tax domestic income of their domestic MNCs in the same way.
D) all of the options

61) A foreign branch is

A) an extension of the parent and is not an independently incorporated firm separate from the parent.
B) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 10 percent of the voting equity stock.
C) either a minority foreign subsidiary (an uncontrolled foreign corporation) or a controlled foreign corporation.
D) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 10 percent of the voting equity stock. In addition, a foreign branch is either a minority foreign subsidiary (an uncontrolled foreign corporation) or a controlled foreign corporation.

62) A foreign subsidiary is

A) an extension of the parent and is not an independently incorporated firm separate from the parent.
B) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 10 percent of the voting equity stock.
C) either a minority foreign subsidiary (an uncontrolled foreign corporation) or a controlled foreign corporation.
D) Both B & C are correct.

63) An uncontrolled foreign corporation is

A) an extension of the parent and is not an independently incorporated firm separate from the parent.
B) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 51 percent of the voting equity stock.
C) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 10 percent but less than 50 percent of the voting equity stock.
D) an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 51 percent of the voting equity stock. In addition, an uncontrolled foreign corporation is an affiliate organization of the MNC that is independently incorporated in the foreign country, and one in which the U.S. MNC owns at least 10 percent but less than 50 percent of the voting equity stock.

64) As a general rule,

A) excess tax credits can be carried back two years.
B) excess tax credits can be carried forward five years.
C) excess tax credits must be used in the year recognized.
D) excess tax credits can be carried back one year and can be carried forward ten years.

65) An overseas affiliate of a U.S. MNC can be organized

A) as a branch.
B) as a subsidiary.
C) as a branch, as well as a subsidiary.
D) none of the options

66) When excess tax credits go unused, the foreign tax liability for a foreign subsidiary 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 foreign subsidiary when excess tax credits cannot be used in a country given:

U.S. tax rate = 35 percent
Foreign tax rate = 39 percent
Withholding tax rate = 5 percent

A) 44.00 percent
B) 35.00 percent
C) 43.36 percent
D) 42.05 percent

67) When excess tax credits go unused, the foreign tax liability for a foreign subsidiary 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 foreign subsidiary when excess tax credits cannot be used in a country given:

A) 35.00 percent
B) 37.00 percent
C) 43.36 percent
D) 42.05 percent

68) As a rule, payments to and from foreign affiliates

A) involve the issue of transfer pricing.
B) involve accounting values assigned to goods or services exchanged between foreign affiliates.
C) involve tax credits trading between affiliates.
D) Both A & B are correct.

69) A transfer price

A) is the price for a good or service that one division of a firm charges to another division of a firm.
B) is an accounting issue, not a finance issue.
C) does not involve actual cash flows, therefore does not impact the share price.
D) none of the options

70) Suppose a U.S.-based MNC makes bicycles with parts from its subsidiary in a low-tax East Asian country. The bicycle frames are made here, the component parts (cranksets, wheels, and so on) are made abroad, and the bicycles are assembled in Japan and reimported to the U.S. It can reduce its reported U.S. income—and increase its subsidiary's profits—by

A) overcharging its subsidiaries for the U.S.-made frames.
B) undercharging its subsidiaries for the U.S.-made frames.
C) assembling the bicycles in the U.S.
D) none of the options

71) The higher the transfer price

A) the higher the net profit reported by the MNC.
B) the higher the gross profit of the receiving division relative to the transferring division.
C) the higher the gross profit of the transferring division relative to the receiving division.
D) none of the options

72) Affiliate A sells a million units to Affiliate B per year. The marginal income tax rate for Affiliate A is 20 percent and the marginal income tax rate for Affiliate B is 50 percent. The transfer price can be set at any level between $100 and $200. Which transfer price between A and B should the parent select?

A) $200
B) $100
C) $150
D) none of the options

73) The U.S. IRS allows transfer prices to be set using the arms-length price.

A) This is a very straight-forward method to use in practice—just use the eBay price.
B) This method is difficult to apply in practice because many factors enter into the pricing of goods and services.
C) both of the options
D) none of the options

74) The lower the transfer price,

A) the higher the net profit reported by the MNC.
B) the lower the gross profit of the transferring division relative to the receiving division.
C) the lower the gross profit of the receiving division relative to the transferring division.
D) none of the options

75) 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

A) Bahrain, Bermuda, and the Cayman Islands.
B) Denmark, Norway, Switzerland, and Sweden.
C) Bulgaria, Canada, Saudi Arabia, and South Africa.
D) Congo, Egypt, Kuwait, and Zaire.

76) These days the benefits of "tax haven" subsidiaries have been reduced by

A) the present corporate income tax rate in the United States is not especially high in comparison to most non-tax haven countries.
B) the rules governing controlled foreign corporations have effectively eliminated the ability to defer passive income in a tax haven subsidiary.
C) both of the options
D) none of the options

77) A controlled foreign corporation (CFC) is

A) a foreign corporation established as an affiliate of a U.S. corporation for the purpose of "buying" from the U.S. corporation property for resale and use abroad.
B) a foreign subsidiary that has more than 50 percent of its voting equity owned by U.S. shareholders.
C) a separate domestic U.S. corporation actively engaged in business in a U.S. possession (Puerto Rico and the U.S. Virgin Islands).
D) one that has no "overall limitation" in regards to its foreign tax credits.

78) The undistributed Subpart F income of a Controlled Foreign Corporation of a U.S. MNC

A) is tax deferred until it is remitted via a dividend.
B) is subject to immediate taxation.
C) is withheld under subpart U.S. income restrictions.
D) none of the options

79) There are three production stages required before a bicycle produced by MasiBicicletia S.A. can be sold at retail for €4,500. The VAT rate is 15 percent. Find the total tax liability due.

A) €525
B) €675
C) €3,500
D) none of the options

80) There are three production stages required before a bicycle produced by MasiBicicletia S.A. can be sold at retail for €3,500. The VAT rate is 15 percent. Find the total tax liability due.

A) €525
B) €150
C) €3,500
D) none of the options

81) If U.S. taxing authorities did not limit the amount of the foreign tax credit to the equivalent amount of the U.S. tax

A) payers would arguably subsidize part of the tax liabilities of U.S. MNC's foreign earned income.
B) national neutrality would suffer.
C) MNCs would all depart our shores.
D) all of the options

82) Active income is income

A) that results from production by the firm or individual (of goods or services).
B) earned by professional athletes.
C) that includes dividend and interest income, since the tax court has ruled that taking risk is a form of work.
D) none of the options

83) The current U.S. marginal tax rate for domestic nonfinancial corporations is 21 percent.

A) This is positioned pretty well in the middle of the rates assessed by the majority of countries, as reported in the PricewaterhouseCoopers annual Corporate Taxes: Worldwide Tax Summaries.
B) Is positioned toward the upper end of the rates assessed by the majority of countries.
C) But this is reduced on a dollar-for-dollar basis for any and all taxes paid to foreign governments, so this is an upper limit for the tax rate faced by U.S. MNCs.
D) all of the options

84) Transfer pricing can have an effect on how divisions of an MNC are perceived by the local banks. Which transfer price would leave a local affiliate that imports components from the parent with less impressive financial statements?

A) High transfer price
B) Low transfer price
C) none of the options

85) For a parent that sells goods to a subsidiary, transfer pricing can have an effect on international capital expenditure analysis. A very low markup policy makes the APV of a subsidiary's capital expenditure appear

A) more attractive.
B) less attractive.
C) no impact.
D) none of the options

86) Transfer pricing can have an effect on share value

A) to the extent that financial markets are inefficient.
B) to the extent that security analysts do not understand the transfer pricing strategy being used.
C) to the extent that third parties benefit from the transfer price.
D) Both A & B are correct.

87) With an MNC

A) the decision to set a transfer price can be complicated by import duty considerations.
B) the decision to set a transfer price can be complicated by exchange rate restrictions imposed by governments.
C) the decision to set a transfer price can be complicated by tax considerations, if there is a difference in tax rates between the host country and the home country.
D) all of the options

88) Using transfer pricing "creativity" MNCs can

A) try to move blocked funds (but the host country might be watching).
B) evade tax liabilities (but the host country might be watching).
C) Both A & B are correct.
D) try to move blocked funds (but the host country might be watching), as well as evade tax liabilities (but, again, the host country might be watching). There's nothing that the host country government can do about it.

89) Suppose a U.S.-based MNC makes computers with parts from its subsidiary in a low-tax East Asian country. It can reduce its reported U.S. income—and increase its subsidiary's profits—by

A) overpaying for the computer components.
B) underpaying for the computer components.
C) paying an arm's length price.
D) none of the options

90) The U.S. IRS allows transfer prices to be set using

A) comparable uncontrolled price method.
B) resale price method.
C) cost plus approach.
D) all of the options

91) When the income tax rate in the host country is greater than the tax rate in the parent country,

A) it is beneficial to follow a high markup policy on transferred goods and services from the parent to a foreign affiliate.
B) it is beneficial to follow a low markup policy on transferred goods and services from the parent to a foreign affiliate.
C) transfer pricing will not affect the total tax liability, net of foreign tax credit offsets.
D) none of the options

92) In the United States foreign-source income is taxed at the same rate as U.S.-earned income and a foreign tax credit is given against taxes paid to a foreign government. However,

A) the foreign tax credit is limited to the amount of tax that would be due on that income if it were earned in the United States.
B) if the tax rate paid on foreign-source income is greater than the U.S. tax rate, part of the credit may go unused.
C) both of the options
D) none of the options

93) Suppose you are a citizen of the United States with foreign-source income. In the foreign country the tax rate is 40 percent and your U.S. rate is 30 percent. For every $10,000 of foreign-source income you will

A) receive a tax credit of $3,000.
B) receive a tax credit of $3,500.
C) receive a tax credit of $4,000.
D) receive a tax credit of $1,000.

94) You are a U.S. MNC with a 40 percent U.S. tax rate. You have an Irish subsidiary. The corporate income tax there is 12½ percent. For every $10,000,000 of income the subsidiary reports, you will owe taxes to the U.S. Treasury in the amount of

A) $4,000,000.
B) $1,250,000.
C) $2,750,000.
D) none of the options

95) In general the United States claims

A) only a limited taxing jurisdiction over nonresident alien individuals and foreign corporations.
B) unlimited taxing jurisdiction over nonresident alien individuals and foreign corporations.
C) unlimited taxing jurisdiction over resident alien individuals and foreign corporations.
D) none of the options

96) A tax haven is

A) a country that has a low corporate income tax rate and low withholding tax rates on passive income.
B) a country with no taxes and no enforcement of foreign tax laws within its borders.
C) any country with a higher tax rate than available domestically.
D) none of the options

97) When a host country imposes an ad valorem import duty on goods shipped across its borders from another country:

A) the import tax raises the cost of doing business within the country
B) the ad valorem import duty is a percentage tax levied at customs on the assessed value of the imported goods.
C) both of the options
D) neither of the options.

98) An income tax is a direct tax.

⊚ true
⊚ false

99) The U.S. Tax Cuts and Jobs Act (TCJA) enacted in December 2017 moved the United States from a worldwide system towards a 100% dividend exemption territorial system for foreign-source dividends received from a specified 10% owned foreign corporation by a domestic C corporation for tax years beginning after December 31, 2017.

⊚ true
⊚ false

100) Foreign tax credits are allowed for foreign taxes paid on amounts that are eligible for the new 100% dividend exemption under the territorial system.

⊚ true
⊚ false

101) The 100% dividends-received deduction enacted as part of the 2017 TCJA or Tax Cuts and Jobs Act legislation exempts a U.S. parent C corporation from any U.S. tax liability when the foreign-source income is repatriated from a 10% owned foreign corporation

⊚ true
⊚ false