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Exam of 6 pages for the course international tax planning and fiscal ethics at UM (PAST EXAMS)
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International Tax Planning & Transfer Pricing –Exam questions 2009-2010
Tax Planning (total 10 points)
Multiple choice questions (1 point for each good answer, 4 in total)
1. Which statement is true:
a) If the Effective Tax Rate is higher than the Natural Tax Rate, there is no room for
improvement from a tax side
b) If the Effective Tax Rate of a multinational group of companies is higher that the Statutory
(Corporate Income) Tax Rate of the country of residence of the head office, there are tax
leakages in the structure
c) If the Natural Tax Rate is equal to the Effective Tax Rate, there are no imperfections in the
structure but there may still be room for improvement
d) The Effective Tax Rate can only be used as a benchmark to compare companies and can’t be
used to give an opinion of the tax structure of a multinational group of companies
2. Pick the best addition to the following phrase:
Looking at a holding location for a holding company:
a) I don’t care about the Statutory Tax Rate at that location as all income of the holding
company will be exempt due to the nature of being a holding company
b) The main focus is on application of the parent-subsidiary directive at the level of the
subsidiaries of the holding company
c) The main focus is on reducing withholding tax on interest and dividends received by and
interest and dividends paid by the holding company
d) The final choice will be made on the basis of both the application participation exemption
and reducing the withholding tax on dividends received by and dividends paid by the
holding company
3. When considering incorporating a group finance company into the structure of a multinational
group of companies, considering it from a fiscal viewpoint (choose the best statement):
a) I look for a location with a sunny climate, sandy beaches and huge shopping malls
b) I only put locations with a low corporate income tax rate on the short list
c) It is important to assure that the participation exemption is applicable on the shares (both on
capital gains and dividends) in this group finance company
d) Any withholding tax on interest paid to this group finance company will be a tax cost for the
group and thus have an increasing effect on the Effective Tax Rate
4. Which statement is true:
a) Tax avoidance will get you in jail
b) You can’t reduce the effective Tax Rate of a company without changing its business-model
c) Tax evasion has sent Al Capone to jail
d) With proper tax planning, transfer pricing looses its importance in managing the Effective Tax
Rate of a multinational group of companies
, Case study (6 points)
Note:
- we advise you to read all the questions first before starting to answer them
- If you want to give a calculated substantiation of your answer, feel free to do so
- feel free to make any presumptions needed for your answer, when there is limited information in
the case description
Company X
Company X, a shoe manufacturer from country A, where it also has its head office, has various
subsidiaries in almost all EU countries. The majority of them are sales companies. One subsidiary is
responsible for all the designs and the marketing. Production takes place in Country A.
The Group will be setting up a new factory to expand the business, in either country B (an EU
member State), or in Country C (being outside the EU).
As you have been recently appointed to be the new tax advisor to Company X, the management has
asked you to give your comments from a fiscal viewpoint as to which country to choose.
For this the management has provided you with the following information:
Company C made an estimate of the EBIT (Earnings Before Interest & Tax) of the new factory for the
first 10 years. In year 1 and 2 they expect start up losses of 500.000 Euro each year. In year 3 the
expect to be break even.
From year 4 to 10 the new factory is expected to generate a profit of 1 mio each year.
Country B: Company X is still the owner of a (currently dormant) subsidiary in Country B. This
subsidiary has carry forward losses amounting to 3 mio Euro’s. The Statutory Corporate Income Tax
Rate of country B is 25%.
Country C: Company X has been granted the use of a 10 year so called ‘Tax Holliday’ in country C. This
Tax incentive means that only half of the profit realized in country C will be taxed. The statutory
Corporate Income Tax Rate of country C is 20%
Question:
1. If you were only to take into account the above information: advice (from tax viewpoint)
Company X how to choose between country B & country C? (2 points)
In the “real world”, not only the Corporate Income Tax is of importance, also withholding taxes play a
role when choosing between two (or more) jurisdictions.
Question:
2a. What would your answer to question 1. Be, if the tax treaty between country A and country C
would include the right for country C to levy a withholding tax of 5% on dividends paid from country
C to country A? (1 point)
2b. How could indirect taxes like customs duty also play a role when Company X has to choose
between country B and country C? (1 point)
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