1 USCo, a U.S. corporation, has a cost basis of $200,000 in the stock of FORCo, a...
Question:
1 USCo, a U.S. corporation, has a cost basis of $200,000 in the stock of FORCo, a wholly-owned corporation in France. FORCo has earnings and profits of $1,000,000. USCo sells FORCo's stock to an unrelated party for $2 million. The tax effect of the transaction is:
(a) USCo has dividend income of $1,800,000.
(b) USCo has capital gain income of $1,800,000.
(c) USCo does not have to report any income from the transaction.
(d) USCo has $800,000 of capital gain income and dividend income of $1,000,000.
2USCo wants to borrow money from Hongco, a Hong Kong corporation. The U.S. does not have a tax treaty with Hong Kong, but both the U.S. and Hong Kong do have a
treaty with country A that eliminates all withholding taxes. To avoid the 30 percent withholding tax that USCo must withhold on all interest payments to Hongco, Hongco forms FORCo, a country A corporation, which will borrow the money from Hongco and relend the money to USCo. This tax planning technique:
(a) will work due to the Non-Discrimination Article of the Model Treaty.
(b) will work because of the Relief from Double Taxation Article of the Model Treaty.
(c) will fail because of the Limitation on Benefits Article of the Model Treaty. (d) will fail because of the Permanent Establishment Article of the Model Treaty.
3. Argentina does not have a tax treaty with the U.S. Russia does have a treaty with the U.S. (a) Argentina is unwilling to reduce its withholding tax rates on interest/dividend payments to
U.S. investors.
(b) Russia is willing to reduce its withholding tax rates on interest/dividend payments to U.S. investors so that it could attract U.S. investments.
(c) Both a and be are correct.
(d) Neither a nor b are correct.
4. Which statement is correct?
(a) Tax treaties carry greater weight than the Internal Revenue Code.
(b) The "first-in-time" rule dictates that the provision (tax treaty or IRC) adopted first controls. (c) Tax treaties carry lesser weight than the IRC.
(d) The "last-in-time" rule dictates that the provision (tax treaty or IRC) adopted last controls.
5. Mathew, a U.S. citizen retires to Canada full-time where he maintains a permanent home for the entire year. Based on the tax treaty tie-breaker rules between the U.S. and Canada:
(a) Mathew will be taxed as a resident of Canada by Canada.
(b) Mathew will be taxed as a citizen of the U.S. by the U.S.
(c) Both a and b. (d) Neither a nor b.
6.Tio, Inc. a U.S. parent owns two subsidiaries, Ecuador Inc. and Taiwan Inc. The corporate tax rate is 20% in Ecuador and 40% in Taiwan. It costs Ecuador Inc. $25 to assemble each widget. Ecuador Inc. sells all 1,000 widgets of its production to Taiwan Inc. at a negotiated price of $65 per unit. Taiwan Inc. sold all 1,000 widgets to independent customers for $90 per unit.
How much is the group's (i.e., single economic unit's) world-wide gross profit? (a) $25,000
(b) $65,000
(c) $90,000
(d) $130,000
7. Is the group's (i.e., single economic unit's) world-wide gross profit arm's length?
(a) No, because Ecuador and Taiwan are related entities.
(b) No, because the subsidiaries are engaged in intercompany transactions
(c) Yes, because Ecuador pays its vendors an arm's length price and Taiwan sells its product at an arm's length price.
(d) Yes, because the intercompany price is a fairly negotiated price.
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