Canadian Income Taxation
Quiz 20 :
Domestic and International Business Expansion
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Q06 Q06 Q06
Crispy Chips Inc. is considering an expansion into the United States. Jeff Arthur, the CEO, is not sure how to structure this new venture and would like some general information before he meets with his accountant and lawyer. Required: Write a memo to Jeff informing him of the two fundamental approaches he can take to conduct his foreign operations (branch and subsidiary corporation), listing two advantages and two disadvantages of each approach.
Q07 Q07 Q07
The Great Big Company (GBC) is a CCPC located in Saskatchewan. GBC owns a foreign subsidiary, The Little Company (TLC), which is located in a foreign country. GBC manufactures electronic component parts which are then sold to TLC for assembly. GBC is subject to a 27% corporate tax rate and TLC is subject to a 19% corporate tax rate. Fiona Big, the CEO of GBC, has mentioned that due to the lower tax rate in the foreign country, the profits of GBC could be shifted to TLC by adjusting the selling price of the component parts. Required: A) Can Fiona Big adjust the selling price of the component parts in order to take advantage of the lower tax rate? Why or why not? B) What are three methods used to establish transfer prices for non-arm's length transactions?
Q08 Q08 Q08
Andy Griffin would like to invest $150,000 in his friend Ernie's company, which was founded and operates in a foreign country. This investment would give Andy 25% ownership of the company. An annual dividend of $15,000 (Canadian funds) is anticipated. Andy's personal marginal tax rate is 45% on regular income, 28% on eligible dividends, and 36% on non-eligible dividends. The foreign company is subject to a tax rate of 38% on all business income. Any dividends received by Andy, personally, will be subject to a 15% withholding tax. Required: 1) Determine a) the total tax liability (foreign and Canadian) that Andy will be subject to upon receiving dividends from the foreign company, and b) the after-tax proceeds. 2) How would your answer in part 1 change if Andy established a Canadian holding company to purchase the shares, (subject to a 5% withholding tax on dividends received)? 3) What would Andy's after-tax proceeds be if he received eligible dividend income from the holding company?