Question

1. Decisions that benefit the firm should never make tax minimization secondary in priority. TRUE    or    FALSE

2. Voluntarily complying with tax laws that apply to a foreign subsidiary reflects a tax principle called tax morality. TRUE    or    FALSE

3. The three categories of trade relationships all relate to unaffiliated firms. TRUE    or    FALSE

4. A source of competitive advantage for a multinational firm can be economies of scale and scope. TRUE    or    FALSE

5. Advanced technology and financial strength rarely are a source of competitive advantage for multinational firms. TRUE    or    FALSE

Answer 1

1. False; sometimes decisons that benefit a firm might not deliver immediate/short term benefits or tax deductions, but might go a long way in helping the Firm maximise its shareholders' wealth in the future years. Hence, it is always preferable if a decision brings strategic benefits as well as tax minimization, but sometimes, looking at the bigger picture will help a Firm in achieving its goals.

2. True; Tax morality refers to the principle of an assessee's willingness to pay due taxes and adhere to all regulations set by tax laws. Hence complying with tax laws applicable to foreign subsidiary shows tax morality.

3. False; the three categories of trade relationships include unaffiliated unknown, unaffiliated known and affiliated.

4. True; since MNCs operate in different countries, they can get the advantage of the special considerations in each country and explout each country's core competencies like cheap labour from China, technology from US, etc. MNCs can get competitive advantage when they have a strong position in the industry as compared to their peers via economies of scale and scope.