Parent and Minor Form a Non-Unitary Group of Corporations

question 64

Multiple Choice

Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3% and Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

• A) Have Parent charge Minor an annual management fee.
• B) Shift Parent's high-cost assembly and distribution operations to Minor.
• C) Execute an intercompany loan such that Minor pays deductible interest to Parent.
• D) Do all of these.
• E) Do none of these.

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Definitions:

Patent

A legal right granted by the government to an inventor, giving the holder exclusive rights to use, make, or sell the invention for a certain period.

Intangible Assets

Assets lacking physical substance, such as patents, trademarks, and goodwill, that are nevertheless valuable to a company.

Kitchen Gadget

A small tool or device that is used in the kitchen for food preparation and cooking tasks.

Land

An asset category representing the ground a company owns, which is not subject to depreciation unlike buildings and equipment.