Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United States, Canada, England, and Australia.

Spartan markets its products in Canada and England through branches in Toronto and London, respectively. Spartan reported total gross income on U.S. sales of $15,000,000 and total gross income on Canadian and U.K. sales of $5,000,000, split equally between the two countries. Spartan paid Canadian income taxes of $600,000 on its branch profits in Canada and U.K. income taxes of $700,000 on its branch profits in the United Kingdom. Spartan financed its Canadian operations through a $10 million capital contribution, which Spartan financed through a loan from Bank of America. During the current year, Spartan paid $600,000 in interest on the loan.

Spartan sells its quidgets to Australian customers through its wholly-owned Australian subsidiary. Title passes in the United States (FOB: shipping point) on all sales to the subsidiary. Spartan reported gross income of $3,000,000 on sales to its subsidiary during the year. The subsidiary paid Spartan a dividend of $670,000 on December 31 (the withholding tax is 0 percent under the U.S.- Australia treaty). Spartan paid Australian income taxes of $330,000 on the income repatriated as a dividend.

Requirement:

1. Compute Spartan’s foreign source gross income and foreign tax (direct and withholding) for the current year.
2. Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan’s FTC limitation calculation. Compute Spartan Corporation’s FTC limitation using your calculation from part (a) and any excess FTC or excess FTC limitation (all of the foreign source income is put in the foreign branch FTC basket).

(Enter your answers in dollars not in millions of dollars.)

Coronavirus: A visual guide to the economic impact  

Global shares take a hit
Big shifts in stock markets, where shares in companies are bought and sold, can affect many investments in pensions or individual savings accounts (ISAs).
The FTSE, Dow Jones Industrial Average and the Nikkei have all seen huge falls since the outbreak began on 31 December.
The Dow and the FTSE recently saw their biggest one day declines since 1987.

Investors fear the spread of the coronavirus will destroy economic growth and that government action may not be enough to stop the decline.
In response, central banks in many countries, including the United Kingdom, have slashed interest rates.
That should, in theory, make borrowing cheaper and encourage spending to boost the economy.
Global markets did also recover some ground after the US Senate passed a $2 trillion (£1.7tn) coronavirus aid bill to help workers and businesses.
But some analysts have warned that they could be volatile until the pandemic is contained.

In the United States, the number of people filing for unemployment hit a record high, signalling an end to a decade of expansion for one of the world's largest economies.
  


Factories in China slowed down
In China, where the coronavirus first appeared, industrial production, sales and investment all fell in the first two months of the year, compared with the same period in 2019.
China makes up a third of manufacturing globally, and is the world's largest exporter of goods.


Restrictions have affected the supply chains of big companies such as industrial equipment manufacturer JCB and carmaker Nissan.
Shops and car dealerships have all reported a fall in demand.
Chinese car sales, for example, dropped by 86% in February. More carmakers, like Tesla or Geely, are now selling cars online as customers stay away from showrooms.

Growth set to stagnate
If the economy is growing, that generally means more wealth and more new jobs.
It's measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.
The world's economy could grow at its slowest rate since 2009 this year due to the coronavirus outbreak, according to the Organisation for Economic Cooperation and Development (OECD).

The think tank has forecast growth of just 2.4% in 2020, down from 2.9% in November.
It also said that a "longer lasting and more intensive" outbreak could halve growth to 1.5% in 2020 as factories suspend their activity and workers stay at home to try to contain the virus.

Questions:
1. Elaborate the impact of this Covid-19 from the article. [30 marks]

AVOIDING PAYING TAXES—CHEATING THE GOVERNMENT

Very few people talk about wanting to pay taxes—for most citizens in most countries it is a natural inclination to avoid paying taxes, particularly when people object to the way the government spends the tax dollars on activities and programs which are contrary to the personal beliefs of individual citizens. Yet most students reading this textbook, and in a college or university course in Canada where this course is being taught, are the beneficiary of tax dollars in the context of how the government collects personal income tax and corporate tax and uses that money to subsidize educational costs—costs such as the building, the salary of the professor, the transportation system that gets you to class etc.

Sometimes national and regional governments operate in areas where there are not enough medium and large-sized companies paying corporate tax—therefore the government has a difficult time obtaining tax revenue to provide educational and health care services to the citizens. When the government does not have the means to collect enough taxes it has to make choices and often one of the primary ways governments cut costs is to cut education funding—meaning cuts to the number of teachers and cuts to facilities, technology, and other things necessary for students to obtain an education.

Recently (in 2012 and 2013), a number of leading American IT companies, such as Apple and Google, have been harshly criticized for using various strategies to avoid paying taxes in the United States, for example by outsourcing, offshoring, and listing income under foreign subsidiaries. The irony of the situation is bitter since both Apple and Google produce products and services that make it easier for students to carry out their studies, yet by avoiding paying millions in tax, these actions deprive the government of tax dollars that could be used to fund education.

Tax avoidance is not limited to the United States. In May 2013, The Economist magazine²¹ reported that “Google came under fire from British politicians, one of whom publicly accused the Internet giant of using unethical methods to avoid paying its fair share of tax.” In the United States, the Senate's Permanent Subcommittee on Investigations reported that “between 2009 and 2012 Apple avoided paying tax in America on at least $74 billion of profits by setting up subsidiaries in Ireland that had no purpose other than to ensure these profits were shielded from tax.”

Questions

1. Tax avoidance has been a hot topic in the United States, has it become a topic in Canada as well? Research some news stories to see if you can find some Canadian companies criticized for avoiding Canadian taxes.

2. The national government in Canada is now making more stringent efforts to collect tax from companies paying late, or not paying the full amount. Searching online, can you find out what the government is doing to recover money owed?

Also, many studies of unethical behaviour in a business setting have concluded that business people sometimes do not realize they are behaving unethically, primarily because they simply fail to ask, “Is this decision or action ethical?”²⁰ Instead, they apply a straightforward business evaluation to what they perceive to be a business decision, forgetting that the decision may also have an important ethical dimension.

Considering the calculations you have done so far, you need to attend to a number of import transactions for goods that companies in the United States expressed interest in.

The first transaction is for the import of good quality wines from France, since a retail liquor trading chain customer in the United States, for who you have been doing imports over the past five years has a very large order this time. The producer in France informed you that the current cost of the wine that you want to import is and €2,500,000. The producer in France will only ship goods in three months’ time due to seasonal differences but payment will have to be conducted six months from now.

The second transaction is for the export of 3d printers manufactured in the U.S.A. The country where it will be exported to is Canada. The payment of CAD 2,500,000 for the export to Canada will be received twelve months from now.

You consider different transaction hedges, namely forwards, options and money market hedges.

You are provided with the following quotes from your bank, which is an international bank with branches in all the countries:

Forward rates:

Bank applies 360 day-count convention to all currencies (for this assignment apply 360 days in all calculations).

Annual borrowing and investment rates for your company:

Bank applies 360 day-count convention to all currencies. Explanation – e.g. 3 month borrowing rate on $ = 2.687%. This is the annual borrowing rate for 3 months. If you only borrow for 3 months the interest rate is actually 2.687%/4 = 0.67175% (always round to 5 decimals when you do calculations). Furthermore, note that these are the rates at which your company borrows and invests. The rates are not borrowing and investment rates from a bank perspective.

Determine the option types that you will consider based on the exchange rate quotes provided by your bank. Remember we will long or short the base currencies (in this case study the currencies that are not $) and the FV of premium cost is based on the borrowing cost of $ for the time period of the option. For example if it is a 3 month option, then the interest rate that should be applied is United States 3 month borrowing rate of 2.687%/4 = 0.67175%). Calculate the total cost of using options as hedging instrument for the import from France.

France import cost with option hedge:

Swedish Takeout

In this mini-case, IKEA is expanding internationally via franchising and other means. This case focuses on efforts in the United States, Europe, and Russia.

Expanding markets around the world have increased competition for all levels of international marketing. Cost containment, customer satisfaction, and a greater number of players mean that every opportunity to refine international business practices must be examined in light of company goals. Collaborative relationships, strategic international alliances, strategic planning, and alternative market-entry strategies are important avenues to global marketing that must be implemented in the planning and organization of global management.

Here we focus on a variety of alternative market-entry strategies, including exporting, licensing, franchising, strategic alliances, and direct foreign investments.

Read the case below and answer the questions that follow.

Fifty years ago in the woods of southern Sweden, a minor revolution took place that has since changed the concept of retailing and created a mass market in a category where none previously existed. The catalyst of the change was and is IKEA, the Swedish furniture retailer and distributor that virtually invented the idea of self-service, takeout furniture. IKEA sells reasonably priced and innovatively designed furniture and home furnishings for a global marketplace.

The name was registered in Agunnaryd, Sweden, in 1943 by Ingvar Kamprad—the IK in the company’s name. He entered the furniture market in 1950, and the first catalog was published in 1951. The first store didn’t open until 1958 in Almhult. It became so incredibly popular that a year later the store had to add a restaurant for people who were traveling long distances to get there.

IKEA entered the United States in 1985. Although IKEA is global, most of the action takes place in Europe, more than 70 percent of the firm’s $36 billion in sales. Nearly one-fourth of that comes from stores in Germany. This level compares with only about $5 billion in NAFTA countries. The firm has stores in more than 40 countries around the world.

One reason for the relatively slow growth in the United States is that its stores are franchised by Netherlands-based Inter IKEA Systems, which carefully scrutinizes potential franchisees—individuals or companies—for strong financial backing and a proven record in retailing. The IKEA Group, based in Denmark, is a group of private companies owned by a charitable foundation in the Netherlands; it operates more than 350 stores. The Group also develops, purchases, distributes, and sells IKEA products, which are available only in company stores.

1. The fact that IKEA has stores in more than 40 countries around the world and sells to many markets likely means that the company experiences benefits of global marketing? List four benefits and explain.

2. The fact that Ikea strives to lower costs, minimizes materials and packing, and has catalogs that are completely recyclable shows what type of company commitment?

CASE Outsourcing specialized operational tasks has become a common practice. When outsourcing involves the transfer of personal information, issues of security and privacy are raised. Customers may consent to the collection of personal data without realizing that their information could be shared with another company located halfway around the world and subject to different disclosure and protection rules. In recognition of international privacy concerns, the Organization for Economic Co-operation and Development (OECD) created guidelines to enhance privacy protection during transborder data exchanges. Guideline 10 suggests that personal data should not be used or disclosed without the consent of the owner or authority of law. Canadian outsourcing to the United States has become even more controversial since the enactment of the USA PATRIOT Act.15 This legislation allows US lawenforcement officials to obtain personal records or information from any source in the country without the data owner knowing. As a result, there have been several Canadian challenges of personal data outsourcing to the United States. In B.C.G.E.U. v. British Columbia (Minister of Health), union members argued that the Ministry of Health was violating patients’ rights to privacy under section 7 of the Charter by outsourcing physician billing data that contained personal patient information to a private U.S. company.16 The BC Supreme Court disagreed, holding that as long as the contractual arrangement authorized under the Canada Health Act ensured that a reasonable expectation of privacy was protected, the practice was acceptable. Since then BC., Nova Scotia, and Alberta passed legislation that restricts public (not private) sector trans-border outsourcing.17 The Privacy Commissioner rejected a similar complaint against the Canadian Imperial Bank of Commerce. The bank outsourced the processing of credit card transactions to an American company. The specific confidentiality and security contained in the outsourcing agreement were approved by the Office of the Superintendent of Financial Institutions, and this satisfied the Commissioner. Both decisions turned on the specific terms of the outsourcing agreement and prior regulatory approval of the terms. When considering sending sensitive information across the border and outsourcing to American firms, businesses should: • Undertake a security analysis of the American company prior to contracting; • Inform the affected customer data owner; • Include specific confidentiality, security, and reporting provisions in the outsourcing agreement; • Seek regulatory approval of the agreement, if available; and • Regularly audit the privacy practices of the outsourcing company. Increased privacy concerns can be anticipated as the transnational public cloud computing industry replaces user owned software, desks, and laptops as the primary custodians of personal information. “By 2017, enterprise spending on cloud computing will amount to a projected $235.1 billion, triple the $78.2 billion spent in 2011. ….(in 2014) global business spending for infrastructure and services related to the cloud will reach an estimated $174.2 billion, up 20 percent from the amount spent in 2013.”

Question : Are there certain types of information that should remain within Canadian borders? If Canadian data is at greater risk of disclosure when transferred to the United States, why not ban all public and private outsourcing to the United States? Discuss.

Question : How can personal information be protected when stored on a transnational cloud server?

Ayres Services acquired an asset for $86 million in 2018. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows:

Required:
Determine (a) the temporary book–tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account. (Leave no cell blank, enter "0" wherever applicable. Negative amounts should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
  

You would like to open a business in 3 years. This business will require $500,000 to startup. How much should you deposit at the end of each month for the next three years into an account so that you will have the required $500,000 at the end of three years. This account already has $100,000 in it. The interest rate is 6% compounded monthly.

[Indian company] There is a tax filing session in September right for partnership firms and all? Only I need to file my total income and expenditure right. Mine is a startup. And for proof I should be maintaining the bills for the same right. Is there anything else I should be doing in future. Elaborate please any tips or advices as well..

Imagine that you are the Chief Financial Officer (CFO) of a startup airline company. The executive management team has tasked you with making a recommendation about whether the company should buy or lease airplanes. Analyze the major pros and cons for leasing and buying assets. Based on your analysis, provide a recommendation to the executive team. Please cite