1. Sigma Corp.’s Location Decision Sigma Corporation of Boston is contemplating establishing a wholly owned subsidiary operation in the Mediterranean. Two countries under consideration are Spain and Cyprus. Sigma intends to repatriate all after-tax foreign-source income to the United States. In the United States, corporate income is taxed at 21 percent. In Cyprus, the marginal corporate tax rate is 12.5 percent. In Spain corporate income is taxed at 25 percent. Cyprus does not withhold tax on dividend income paid to the United States. However, the withholding tax treaty rate Spain has with the United States on dividend income paid is 10 percent.

The financial manager of Sigma has asked you to help him determine where to locate the new subsidiary. The location decision of Cyprus or Spain will be based on which country has the smaller total tax liability.