ABC Corp. is a multinational company with operations in several countries. In the current year, ABC Corp.
Question:
ABC Corp. is a multinational company with operations in several countries. In the current year, ABC Corp. had the following income and expenses in each country:
Country A: Income of $10 million and expenses of $7 million. Tax rate is 25%.
Country B: Income of $5 million and expenses of $3 million. Tax rate is 20%.
Country C: Income of $3 million and expenses of $2 million. Tax rate is 30%.
In addition, ABC Corp. had $2 million in interest income and $1 million in interest expense in the current year, and it has a net operating loss carryforward of $1 million from a previous year.
a) Calculate ABC Corp.'s taxable income and its income tax liability in each country.
b) Assume that ABC Corp. has the option to allocate its interest income and expense among its subsidiaries in each country. If ABC Corp. wants to minimize its overall income tax liability, how should it allocate its interest income and expense? Show your calculations and explain your reasoning.
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty