International Accounting 3rd Edition By Doupnik – Test Bank

Chapter 11
International Taxation
Multiple Choice Questions

1. What is the optimal tax objective for multinational corporations?
A) minimize domestic taxes paid on worldwide income
B) minimize worldwide taxes paid, within the limitations of applicable tax law
C) minimize worldwide taxes paid
D) minimize foreign taxes

Answer: B Level: Easy LO: 1

2. There are two primary taxes imposed on profits earned by corporations in international trade. One is the corporate income tax. What is the other type of tax on earnings of multinational corporations?
A) excise tax
B) payroll tax
C) withholding tax
D) value-added tax

Answer: C Level: Medium LO: 1

3. Which of the following affect the effective corporate tax rate?
A) tax-based incentives
B) local corporate tax rate
C) method of determining taxable income
D) all of the above

Answer: D Level: Easy LO: 2

4. How do differences in the effective corporate tax rates between countries affect capital investment decisions?
A) Taxes have a negative effect on cash flows from the investment.
B) Taxes determine the rate used in calculating the discounted cash flows.
C) Taxes affect the amount of depreciation that will be recorded on the investment.
D) all of the above

Answer: A Level: Easy LO: 2

5. What is a tax holiday?
A) A trip made to tax havens to buy goods free of sales tax
B) The time between the date of filing the corporate income tax return and the date when taxes are due to be paid
C) This is a period of time when corporations are relieved of paying various taxes.
D) This is the deadline for filing federal tax returns.

Answer: C Level: Medium LO: 3

6. What explains the “follow-the-leader” effect of countries changing their corporate tax rates in response to changes made by other countries?
A) Harmonization of accounting standards
B) Competition for foreign investment
C) Currencies pegged to another country’s currency
D) None of the above

Answer: B Level: Medium LO: 1

7. In the context of international taxation, the Bahamas, Lichtenstein, and Monaco are considered by the OEDC as:
A) tax holidays
B) tax shelters
C) tax havens
D) tax centers

Answer: C Level: Easy LO: 1

8. What is a tax haven?
A) A jurisdiction where taxes are abnormally low
B) A location where tax cheats live to escape prosecution
C) A tax jurisdiction where world-wide tax is eliminated
D) Locations that provide tax-based incentives to corporations

Answer: A Level: Medium LO: 1

9. In addition to having very low effective tax rates, which of the following is also a characteristic of tax havens?
A) lack of transparency in financial reporting
B) lack of effective exchange of information
C) absence of substantial activities requirement
D) all of the above

Answer: D Level: Easy LO: 1

10. The Organization for Economic Cooperation and Development (OECD) has established guidelines to eliminate tax havens. Why, then, can the OECD (as of 2004) still identify over 30 countries as tax havens?
A) The definition of tax haven continuously changes.
B) The concept of tax haven is supported by the United Nations.
C) The OECD has no enforcement powers.
D) The OECD lacks the willingness to enforce the guidelines.

Answer: C Level: Medium LO: 1