Buckwold12e_ch20_Review

Buckwold12e_ch20_Review - CHAPTER 20 DOMESTIC AND...

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CHAPTER 20 DOMESTIC AND INTERNATIONAL BUSINESS EXPANSION Review Questions 1. Domestic and international expansion decisions, like any investment decisions, should attempt to utilize a structure that will minimize the start- up cash requirements and maximize the cash returns to the initiator. Briefly outline the fundamental tax considerations that are relevant to the expansion process. 2. What are the two basic organization structures that can be used for domestic expansion activities without the participation of new equity investors? What is the major difference between these structures regarding tax? 3. The rates of applicable provincial tax and tax on manufacturing profits may be different solely as a result of the expansion structure chosen for new activities. Explain why. 4. What are the basic organization structures that can be used for domestic expansion activities requiring additional capital from new equity participants? 5. When new equity participants are required in order to complete an expansion, what decisions must be made before an analysis of the organizational structure is performed? 6. Is it possible to increase the after-tax rate of return by choosing to give up more equity, rather than less, when new equity participants are required for expansion? Explain. 7. What are the primary business structures used to conduct foreign expansion activities? 8. In most cases, what must be true before a Canadian entity will be subject to foreign taxes on foreign business activities? 9. When the tax rates in a foreign country are lower than Canadian tax rates, will the use of a foreign branch structure to conduct the Canadian entity’s foreign activities be advantageous? Explain. 10. In what circumstances is a foreign branch structure preferable to a foreign corporation structure?
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11. Assume that a Canadian individual owns a substantial portion of a foreign corporation’s shares and receives a dividend from them. Would the tax treatment applied to that dividend be different if it were first paid to a Canadian corporation owned by that individual? 12. “If foreign tax rates are the same as Canadian tax rates, a Canadian corporation conducting profitable foreign activities will not care whether a foreign branch or a foreign corporation is used to house the foreign operations.” Is this statement true? Explain. 13. A Canadian business corporation may, in addition to providing equity capital, support its foreign operations by providing loan capital, management services, technology, and equipment. What general implications does the foreign organization structure (branch versus corporation) have on these additional support activities? 14. Why may a Canadian business entity attempt to underprice or overprice products sold to its foreign subsidiary corporation? How do Canadian tax laws treat such transactions? 15.
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Buckwold12e_ch20_Review - CHAPTER 20 DOMESTIC AND...

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