Global Giant, a Multinational Corporation, Has a Producing Subsidiary in a Low

question 131

Multiple Choice

Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country. If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to ________.

• A) stop producing in the low tax rate country
• B) stop marketing in the high tax rate country
• C) establish a low transfer price when the producing unit sells to the marketing unit
• D) establish a high transfer price when the producing unit sells to the marketing unit

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Definitions:

Retained Earnings

The portion of a company's profits that is kept or retained rather than distributed to shareholders or owners as dividends.

Net New Equity

The amount of equity capital a company raises through the issuance of new shares minus any shares it has bought back, reflecting the net increase in share capital.

Non-Cash Items

Expenses or incomes recorded in accounting but do not involve any actual cash flow, such as depreciation, amortization, or stock-based compensation.

Capital Spending

Expenditures by a company for physical assets like property, industrial buildings, or equipment.