Question Five

Read the following case carefully and answer the questions that follow.Foreign-owned corporate groups could lose tax credits and be forced to share commercially sensitive information as a result of the consolidations tax regime, experts warned yesterday. The rules, to start on July 1, are expected to be taken up by most corporate groups. The rules will enable those groups to lodge a single income-tax return, with one subsidiary becoming the

'nominated' head of the Australian group, responsible for all tax obligations.

But tax experts say the implications for foreign-owned corporate structures with multiple entry points into Australia are likely to lose tax credits. This may result in lower profits where firms may fail to meet analysts' expectations which could trigger negative reaction on the share market. As such, investors are likely to walk away from these firms.

Required:

(i)Explain how the psychological pragmatic approach views the reaction of investors

(2 marks)

Identify two problems with using this approach to view investors' reaction. (2 marks)