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8e-sm-10 - Federal Tax Research Eighth Edition Page 10-1...

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Federal Tax Research, Eighth Edition Page 10-1 CHAPTER 10 INTERNATIONAL TAX SERVICES DISCUSSION QUESTIONS 10-1. The ultimate tax planning goal of most companies is quite simple – reduce the company’s overall global effective tax rate. Finding the road that leads to this goal is the challenge. Page 352 10-2. The native country is where the taxpayer is a citizen, legal resident or incorporated (domestic corporation). The transaction country is where the income is earned. Page 352 10-3. The three models for developing international taxing systems are: full inclusion, territorial, and blended (current U.S. model). Page 352 10-4. Under the Full Inclusion Model, a business pays taxes in its native country on all income it earns, regardless of its source. The full inclusion model generally insures that the company pays the same amount of taxes whether its businesses are located within the native country or in a different country. Some argue that the full inclusion model interferes with a company’s ability to compete in foreign markets when the resident country’s tax is higher than the transaction’s tax. Page 352 10-5. International tax provisions generally are concerned with the two potential tax situations: the native country’s taxation of its citizen’s foreign-source income (outbound) and the transaction country’s taxation of foreign taxpayers earning income within its borders (inbound). Page 352 10-6. With a Territorial Model, the local business is subject to the native country tax only on income earned within its boundaries. It would not be taxed on income earned outside the native country. A territorial model generally permits a company with foreign operations to pay the same amount of taxes as a company whose residence is in that foreign country. Page 353 10-7. The U.S. international model reflects the tension between the full inclusion capital export neutrality and territorial capital import neutrality. By allowing tax deferral on foreign subsidiary income, the blended
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Page 10-2 Instructors Manual model encourages domestic corporations to retain earnings in foreign countries and postpone repatriation as long as possible. This model also causes numerous opportunities for U.S. tax base erosion. Page 354 10-8. Income from rents is sourced by the location of the property that is relevant. Sales of inventory are sourced by the location of the transaction not by the origin of the inventory. Thus, inventory purchased in a foreign country but sold within the U.S. produces domestic sourced income. Page 354 10-9. Expenses that are either not attributable to any income source or are associated with more than one source that must be apportioned to determine the amount deductible in the U.S. Page 354 10-10. The World Trade Organization (WTO) is a global organization that concentrates on developing multilateral trading system agreements that become the legal ground-rules for international commerce between nations. The International Money Fund (IMF) promotes international monetary cooperation, exchange stability, and orderly exchange arrangements. It tires to foster economic growth and high levels
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