statements

options to statements

ability to select a particular policy is severely limited when a foreign subsidiary is part-owned either by a local joint-venture partner or by local stockholders Read each statement. Then select the most appropriate category and determine if each item is an advantage for the parent company or a concern for the local firm. Each statement will have two answers. 1. Common method of transfer to parent-Individual subsidiaries' policies vary, but this is the most common method by which subsidiaries transfer funds to parent companies Divident remittances - advantages for parent/subsidary 2. Benefit could be lost-Tax benefits could be lost if the subsidiary's combined tax rate is higher than the parent's (Click to select) 3. Distortion-Can create artificially high costs for local unit, which may not be recouped by local owners as they do not share the parent company's tax liability. (Click to select) 4. Not an arm's-length transaction-Firms can use to circumvent tax regulations by increasing pre-tax costs. (Click to select) 5. Recognize demands for local owners-Local equity participation must be recognized. Needs of both unit and local owners. (Click to select) 6. Often tax deductible locally-Payments may be tax deductible locally, which will reduce the subsidiary tax burden. (Click to select) Divident remittances - advantages for parent/subsidary Divident remittances - local subsiary/owner concern Royalty payments and fees - advantages for parent/subsidary Royalty payments and fees - local subsidiary/owner concern Transfer pricing - advantages for parent/subsidiary Transfer pricing - local subsidiary/owner concern IAI