Subsidiary Alpha in Country Able faces a 40% income tax rate. Subsidiary Beta in Country Baker faces only a 20% income tax rate. At present each subsidiary imports from the other an amount of goods and services exactly equal in monetary value to what each exports to the other. This method of balancing intra-company trade was imposed by a management keen to reduce all costs, including the costs (spread between bid and ask) of foreign exchange transactions. Both subsidiaries are profitable, and both could purchase all components domestically at approximately the same prices as they are paying to their foreign sister subsidiary. Is this an optimal situation?
Answer to relevant QuestionsWhich assets play the most critical role in linking the major institutions which make up the global financial marketplace? All MNEs attempt to minimize their global tax liabilities. Return to the original set of baseline assumptions and answer the following questions regarding Americo’s global tax liabilities: a. What is the total amount – ...What are the differences between a “license fee” and a “royalty fee”? Do you think license and royalty fees should be covered by the tax rules that regulate transfer pricing? Why? Why might different documentation be used for an export to a nonaffiliated foreign buyer who is a new customer, as compared with an export to a nonaffiliated foreign buyer to whom the exporter has been selling for many ...Explain the difference between a letter of credit (L/C) and a draft. How are they linked?
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