international tax questions
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1 - What role do tax credits play in international taxation? What considerations might cause tax credits to not achieve their intended results?
2. Sweden has a classical system of taxation. Calculate the total taxes that would be paid by a company headquartered in Stockholm that earns 750,000 swedish krona (SEK) and distributes 50% of its earnings as divides to its share holders. Assume the company's shareholders are in the 40% tax bracket and that the company's income tax rate is 28%.
3. Global enterprises has a manufacturing affiliate in country A that incurs cost of $300,000 for goods that it sells to its sales affiliate in country b. The sales affiliate resells these goods to final consumers for $850,000. Both affiliates incur operating expenses of $50,000 each. Counties A and B levy a corporate income tax of 35% on taxable income in their jurisdiction.
Required If Global enterprises raises its aggregated transfer price such that shipment form its manufacturing to its sales affiliate increase from $500,000 to $600,000, what effect would this have on consolidated taxes?
4. Using the facts as stated in problem 3 what would be the tax effects of the transfer pricing action if corporate income tax rates were 30% in country A and 40% in country b?
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1 - What role do tax credits play in international taxation? What considerations might cause tax credits to not achieve their intended results?
A tax credit in the context of international taxation is an income tax credit that directly reduces the amount of income tax paid by offsetting other income tax liabilities. The role of tax credits is to protect companies from double taxation. They may be required to pay an income tax in the country of where it has a branch and then again pay tax again when the income is repatriated to the home country. In other words to prevent a company that is involved in international trade from paying tax twice, tax credit is given.
Tax credits do not achieve their intended results if the tax paid in one country is used to decrease the tax due in the country where money is repatriated. Thus in the US the law is very clear. The maximum income on which tax credit can be claimed is equal to the income on which the tax is levied. So if a country has a higher rate of tax than that paid in the USA, the higher taxation paid in the country of the branch will not affect the tax that is levied on incomes earned in the USA.
Another consideration that may cause tax credits to not achieve their intended results is that companies may manipulate the income they show in one country to minimize the total tax impact on the company. A very effective way of doing this is through the manipulation of transfer price. Other methods of doing this are to charge consultation fees in one ...
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