Chapter 8 LS

The withholding tax rate for portfolio dividends (paid to individuals) recommended by the OECD model is:

15%

Excess foreign tax credits (FTC) may be used to offset additional taxes paid to the U.S on foreign source income in years in which foreign tax rates are lower than the U.S tax rate. How many years can an excess FTC may be carried forward?

10 year

True or false: The U.S model treaty exempts interest and royalties from withholding tax.

True

True or false: The amount of CFC income currently taxable in the U.S depends on the percentage of CFC income generated from Subpart F activities.

True

Double taxation arises when:

Two countries levy tax on the same income

One of the two approaches taken on the issue of foreign source income is:

Worldwide approach

The American Jobs Creation Act of 2004 required foreign source taxable income to be classified into two categories, also referred as "baskets". What are the two baskets?

a general income basket and a passive income basket

Tax issues are important in deciding: a. where to locate a foreign operations b. what legal form the operation should take c. how the operation will be financed

a, b, and c

Which of the following factors determine the amount of income taxes paid to a government? a. the corporate income tax rate b. how taxable income is calculated c. which expenses are deductible

a, b, c

Regardless of the approach used in determining the scope of taxation, a second issue related to jurisdiction is:

the basis of taxation

What does "global intangible low-taxed income" refer to?

the income earned by controlled foreign corporations (CFC) exceeding a specified return on all CFCs' tangible assets

The U.S parent manufactures a product that it sells to its controlled foreign corporation (CFC) in Hong Kong, which in turn sells the product to customers in Japan. Which sales would generate Subpart F income?

the sales to customers outside of Hong Kong

True or false: The BEAT only applies to U.S corporations that are part of a group with average revenue of at least $500 million over the previous 3 years and have base erosion payments exceeding 3% of the company's total deductible expenses.

true

True or false: Treaty shopping describes a process in which a resident of Country A uses a corporation in Country B to get the benefit of Country B's tax treaty with Country C.

true

Select the best answer to complete the following statement: "The BEAT - Based Erosion Anti-abuse Tax - is a new tax that is intended to apply to companies that significantly reduce their Blank______ by making payments to foreign affiliates (foreign parent, foreign subsidiary, or foreign branch)."

us tax lability

Multinational corporations make a number of very important decisions in which taxation is an important variable. Taxes issues are important in deciding all of the following, except:

which local culture to follow

Assume that Davis company (a U.S taxpayer) has a subsidiary located in Uzbekistan. The income tax rate in the U.S is 21%, in Uzbekistan is 7.5%, and the withholding tax rate in Uzbekistan is 10%. What is the effective tax rate of Uzbekistan? Is Uzbekistan a tax haven?

16.75%. Yes, it is a tax haven

The withholding tax rate on dividends in the U.S is 30%. Frucot, an U.S-based company, pays $200 dividend to a stockholder in Vietnam. What is the amount of tax withheld from the dividend payment?

$60 = 200*30%

The Tax Cuts and Jobs Act 2017 created an additional Foreign Tax Credit (FTC) basket for foreign branch income. What is/are the result(s) of this change? 1. Controlled Foreign Corporations (CFC) Subpart F income must be allocated to either a general income basket or a passive income basket 2. Foreign branch income must be allocated to a foreign branch income basket. 3. Companies are allowed to net FTCs across baskets.

1 and 2

The Tax Cuts and Jobs Act, passed in 2017, made the most extensive changes to the international tax provisions in U.S tax law since 1986. What are the objectives of the new provisions? 1. To make the U.S corporations more competitive internationally 2. To prevent erosion of the U.S tax base 3. To balance the U.S import-export

1 and 2

The Tax Cuts and Jobs Act, passed in 2017, made the most extensive changes to the international tax provisions in U.S tax law since 1986. What are the objectives of the new provisions? 1. To make the U.S corporations more competitive internationally 2. To prevent erosion of the U.S tax base 3. To balance the U.S import-exportlance the U.S import-export

1 and 2

Which concept(s) are used to determine the amount of global intangible low-taxed income to be included in U.S taxable income? 1. tested income 2. untested income 3. a specified return

1 and 3

Which concept(s) are used to determine the amount of global intangible low-taxed income to be included in U.S taxable income? 1. tested income 2. untested income 3. a specified return

1 and 3

Excess foreign tax credits (FTC) may be used to offset additional taxes paid to the U.S on foreign source income in years in which foreign tax rates are lower than the U.S tax rate. How many years can an excess FTC may be carried back?

1 year

Assuming that non of a CFC's income is repatriated as a dividend, which of the following is true: 1. If Subpart F income is less than 5 percent of the CFC's total income, then none of the CFC's income will be taxed currently 2. If Subpart F income is between 5 percent and 70 percent of the CFC's total income, then that percentage of the CFC's income which is Subpart F income will be taxed currently 3. If Subpart F income is greater than 70 percent of the CFC's total income, then 100 percent of the CFC's income will be taxed currently.

1, 2 and 3

In 2013, the OECD developed an action plan to help nations close the gaps in tax laws that allows MNCs to artificially, but legally, reduce their taxes. The action plan covers issues such as: 1. designing effective controlled foreign corporation rules 2. limiting base erosion via interest deductions, mandatory disclosure of aggressive tax planning by MNCs 3. the design of domestic rules to prevent tax treaty abuse

1, 2 and 3

What are the purposes of tax treaties? 1. To facilitate international trade and investment by reducing tax barriers to the international flow of goods and services 2. To reduce the possibility of double taxation through the clarification of tax jurisdiction 3. To reduce taxes through a reduction of withholding tax rates

1, 2 and 3

Regarding to the basis of taxation, to determine jurisdictional authority countries usually use: 1. source of income 2. citizenship 3. residence

1, 2 or 3 or their combination

The factors used to determine the appropriate amount of U.S taxable income from foreign operations are: 1. Legal form of the foreign operation (branch or corporation) 2. Percentage level of ownership (controlled foreign corporation or not) 3. Effective foreign tax rate ("tax haven" or not) 4. Nature of the foreign source income (Subpart F income or not) (appropriate foreign tax credit basket)

1, 2, 3 and 4

The types of Subpart F income are: 1. Income derived from insurance of U.S risks 2. Income from countries engaged in international boycotts 3. Certain illegal payments 4. Foreign base company income

1, 2, 3 and 4

What is the range of the value-added tax in the European Union?

17% to 27%

Under the safe harbor rule, if the foreign tax rate is greater than 90 percent of the U.S corporate income tax rate, then none of the CFC's income is considered to be Subpart F income. With the current U.S tax rate of 21 percent, U.S MNCs need not be concerned with the CFC rules for those foreign operations located in countries with an effective tax rate of:

18.9 percent or higher

Assume that HKD company (a U.S taxpayer) has a subsidiary located in Zimbabwe. Income tax rate in the U.S is 21%, in Zimbabwe is 25%, withholding tax rate in Zimbabwe is 10%. What is the effective tax rate of Zimbabwe? Is Zimbabwe a tax haven?

32.5%. No, it is not a tax haven

The withholding tax rate for direct investment dividends (paid by a subsidiary to its parent) recommended by the OECD model is:

5 percent

Select the best answer to complete the following statement: "A controlled foreign corporation (CFC) is any foreign corporation in which U.S shareholders hold more than Blank______ percent of the combined voting power or fair market value of the stock."

50

Select the best answer to complete the following statement: "A controlled foreign corporation (CFC) is any foreign corporation in which U.S shareholders hold more than Blank______ percent of the combined voting power or fair market value of the stock. Only those U.S taxpayers directly or indirectly owning Blank______ percent more more of the stock are considered U.S shareholders in determining whether the threshold is met."

50, 10

Select the best answer to complete the following statement: "Under the safe harbor rule, if the foreign tax rate is greater than Blank______ percent of the U.S corporate income tax rate, then none of the CFC's income is considered to be Subpart F income."

90

The Tax Cuts and Jobs Act, passed in 2017, made the most extensive changes to the international tax provisions in U.S tax law since 1986. Besides the adoption of a participation exemption system of taxation in which most foreign subsidiary income is exempt from U.S taxation. Other major international tax provisions of the new law are all of the followings, except:

A full adoption of OECD model

The factors used to determine the appropriate amount of U.S taxable income from foreign operations are all of the following, except:

Current U.S corporate tax rate

Which countries are considered tax havens?

Bahamas and Ireland

A Vietnamese investor receives dividend payment from an investment in Amazon common stock. The problem of double taxation arises when:

Both Vietnam and the US tax this dividend payment

How is the amount of taxes paid to a government determined?

By the corporate tax rate and the manner in which taxable income is calculated

In determining the net U.S tax liability on taxable foreign income, U.S companies are allowed to: 1. deduct all foreign taxes paid on the related foreign income 2. take a credit for foreign income taxes

Either 1 or 2

In determining the net U.S tax liability on taxable foreign income, U.S companies are allowed to: 1. deduct all foreign taxes paid on the related foreign income 2. take a credit for foreign income taxes

Either 1 or 2

Select the best answer to complete the following statement: "Blank______ income is income that is easily movable to a low-tax jurisdiction."

Subpart F

The tax jurisdictions with abnormally low corporate income tax rates or no corporate income tax at all are known as:

Tax havens

Select the best answer to complete the following statement: "Blank______ are bilateral agreements between two countries regarding how companies and individuals from one country will be taxed when earning income in the other country."

Tax treaties

One of the two approaches taken on foreign source income issue is:

Territory approach

How many years does the TCJA allow U.S. corporations to pay their tax installments?

The TCJA allows U.S. corporations to pay their tax installments for 8 years.

Under the TCJA, at which tax rate were the deemed repatriated earnings that had been invested in noncash assets taxed?

The deemed repatriated earnings that had been invested in noncash assets taxed is 8%.

Select the best answer to complete the following statement: "Blank______ describes a process in which a resident of Country A uses a corporation in Country B to get the benefit of Country B's tax treaty with Country C."

Treaty shopping

What type of tax is usually levied on the value added at each stage in the production or distribution of a product or service?

Value-added tax

Tax planning by multinational entities to artificially shift profits to no- or low-tax jurisdictions (tax havens) where there is little or no real economic activity is referred to as:

base erosion and profit shifting

An important goal of most national tax systems is neutrality. In an international context, one of the standards for neutrality is:

capital-export neutrality

A major type of taxes imposed on profits earned by companies engaged in international business is:

corporate income tax

A major type of taxes imposed on profits earned by companies engaged in international business is:

corporate income tax withholding taxes

Select the best answer to complete the following statement: "The U.S model treaty exempt Blank______ from withholding tax and establish Blank______ as the maximum withholding rate on dividends."

interest and royalties, 15 percent

Select the best answer to complete the following statement: "In the U.S, the Foreign Tax Credit (FTC) allowed is equal to the Blank______ of (1) the actual taxes paid to the foreign government, or (2) the amount of taxes that would have been paid if the income had been earned in the U.S"

lower

The amount of taxes that would have been paid if the income had been earned in the U.S can be computed by:

multiplying the amount of foreign source taxable income by the effective U.S corporate income tax rate

Select the best answer to complete the following statement: "An important goal of most national tax systems is Blank______. The tax system should remain in the background, and business, investment and consumption decisions should be made for non-tax reasons."

neutrality

Withholding taxes are imposed on payments made to foreign parent companies or foreign affiliated companies. The types of payments typically subject to withholding tax are all of the following, except:

purchase on credit