When a company incorporated in a country with a high tax rate does business in countries...

When a company incorporated in a country with a high tax rate does business in countries with lower tax rates, it will report an effective tax rate below its statutory rate.

a. Is the difference sustainable into the future?

b. What occurs if the company decides to repatriate earnings?

c. How should operating taxes be computed in the year of repatriation?

d. How is ROIC distorted by foreign taxation and repatriation?

e. One of the most common deferred-tax liabilities occurs because of accelerated depreciation. When is the difference between reported taxes and cash taxes likely to be greatest? When will it be smallest? Can it reverse? That is, can cash taxes be higher than reported taxes?

Expert Solution

Anwer:-

a) No, the difference is not sustainable. When they repatriate the earnings, the home country requires them to pay the difference. The operating taxes for the repatriation year should be computed including the foreign tax rate and repatriation rate

b) If company tries to repatriate the earnings it will have to pay the taxes on such repatriation in the form of Dividend Distribution tax/Repatriation taxes (or Any other form) received by such recepient companies and the same form of tax may be payable by the company repatriating such funds.

c) Operating taxes should be computed after taking into considerations the Net Income received from the business in High Tax jurisdiction along with the taxes to be paid on the repatriation received from the company in low tax jurisdiction.

d) ROIC will be distorted to seem lower for a company who does business in a country with lower tax rates because they will have to pay difference when they repatriate their earnings to the home country.

e) When depreciation is accelerated, a company will pay less cash tax than reported tax and the difference will be largest. When depreciation is not accelerated, this difference will be smallest. Cash taxes could potentially be higher than reporting taxes in cases where the company is paying down a deferred tax liability from a prior year

ekkarill92 answered 2 years ago

Digital Business Incorporated (DBI) is a worldwide manufacturing company that specializes in high technology products for...

Digital Business Incorporated (DBI) is a worldwide manufacturing company that specializes in high technology products for the aerospace, automotive, and plastics industries. State-of-the-art technology and business innovation have been key to the firm’s success over the last several years. DBI has 10 manufacturing plants in six foreign countries. Its products are sold worldwide through sales representatives and sales offices in 23 countries. Performance information from these plants and offices is received weekly and is summarized monthly at the Toronto headquarters....

Which is worse for a country: a high inflation rate or a high unemployment rate? Cite...

Which is worse for a country: a high inflation rate or a high unemployment rate? Cite at least two pieces of evidence to support your opinion. Attachments Skills 1. Identify patterns of inflation. 2. Analyze economic benefits and challenges of inflation.

Why is a high unemployment rate not good for the country?

In Country A, the income tax rate is 30%. John, who is a resident of Country...

In Country A, the income tax rate is 30%. John, who is a resident of Country A, earns 10 a year, is going to report his income. (A) If he underreports his income, it is detected with 10% probability and the penalty is the square of the underreported income. (If he reports 8 and is detected, he should pay 22 = 4 as penalty.) If John is risk neutral, how much income is he going to report? (B) The tax...

1. A country that does not tax gasoline is considering the introduction of a tax ($3.00...

1. A country that does not tax gasoline is considering the introduction of a tax ($3.00 per gallon). The economic advisors to the country estimate the supply and demand curves for gasoline as: Demand: P = 18-2.5Qd Supply: P = 0.5Qs where Qd is the quantity demanded, Qs is the quantity supplied, and P is the price per gallon. Assume the country does not trade gasoline with other countries. Suppose the country’s health advisor found that gasoline consumption generates negative...

Considering two countries A and B, if they use the euro, Country A uses high technology...

Considering two countries A and B, if they use the euro, Country A uses high technology production which reduces costs, since they have a fixed exchange rate, how will country B respond to locals buying from country A? How will this imbalance cause problem with the fixed exchange rate? Please show me a suitable graph.

Oscar is a resident of Country B. Country B does not have a tax treaty with...

Oscar is a resident of Country B. Country B does not have a tax treaty with the USA. Oscar is an employee of a private company in country B and his employer sends him to the USA in order to do certain work needed to be done in the USA. Here are his days of presence in the US: • September 1, 2018, until April 15, 2019. During this time he made $200,000. • January 1, 2019 until June 30,...

Can a country have high investment if it doesn't not have a high rate of domestic...

Can a country have high investment if it doesn't not have a high rate of domestic savings? Please explain.

Pick a company that does business in at least two (2) countries and explain what Items...

Pick a company that does business in at least two (2) countries and explain what Items they are able to do the same in both countries and what items have to be changed from one country to the other. For example, marketing, advertising, human resource management, pricing, etc., are subject you may find differences from one county to another. Explain what this difference may exist.

Examine the countries where your company does business according to where they rank on the Hofstede...

Examine the countries where your company does business according to where they rank on the Hofstede cultural dimensions. Think of some examples of how a U.S. manager would need to modify his or her behavior when communicating with associates from one or more of these foreign countries.

Question