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CHAPTER 11: INTERNATIONAL TAXATION Chapter Outline I. Taxes are one of the most significant costs incurred by business enterprises. Taxes can be an important factor in making decisions related to foreign operations including: in which country should an operation be located, what should its legal form be, and should it be financed with debt or equity. II. The two major types of taxes imposed on profits earned by companies with foreign operations are income taxes and withholding taxes. A. Most countries have a national corporate income tax rate that varies between 20% and 35%. Countries with no or very low corporate taxation are known as tax havens. MNCs often attempt to use operations in tax haven countries to minimize their worldwide tax burden. B. Withholding taxes are imposed on payments made to foreigners in the form of dividends, interest, and royalties. Withholding rates vary across countries and often vary by type of payment within one country. Differences in withholding rates provide tax planning opportunities for the location or nature of a foreign operation. III. Tax jurisdiction over income is an important issue. Two factors determine which country will tax which income: (a) whether a country uses a worldwide or territorial approach to taxation, and (b) whether a country taxes on the basis of source of income, residence of the taxpayer, and/or citizenship of the taxpayer. A.
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This note was uploaded on 03/21/2012 for the course BACC 102 taught by Professor A during the Spring '11 term at Andhra University.

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