Prove that when the foreign tax rate exceeds the domestic rate, foreign investment is preferred to domestic investment, for any investment horizon, if and only if the after-local tax rate of return abroad exceeds the after-tax rate of return at home, rf > rd. Also prove that the same condition determines whether reinvestment abroad is preferred to repatriation of foreign earnings and profits.
Answer to relevant QuestionsDo all U.S. corporations have an incentive to reduce their foreign taxes paid? Why or why not? Why might a firm wish to repatriate income from a subsidiary in a low-tax country? If it does so, is it advisable to repatriate income from a high- tax country at the same time? Why or why not? Wisconsin Cheese Corp. is a large producer of gourmet cheese and has recently expanded overseas. In its first year of international operations ( year 1), Wisconsin Cheese had $ 1 billion of U. S. taxable income, faced a 35% ...What are constructive dividends? Do you think constructive dividends are more likely to occur in large publicly traded corporations or small privately held corporations? Why? Which of the following scenarios will qualify under Section 351 as a nontaxable corporate formation? For those that do not qualify, what requirement of Section 351 do they violate? a. Ginger, Mary Ann, and Mrs. Howell form ...
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