A Multinational Corporation May Attempt to Minimize the Taxes It

question 13

Multiple Choice

A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in a high-tax country. Why is this often not successful?

• A) Laws in the foreign country may prohibit such a scheme.
• B) The high transfer price would actually increase taxes.
• C) Foreign exchange losses will eliminate any tax savings.
• D) None of the above

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Definitions:

Muscle Cells

Specialized cells capable of contracting and relaxing, contributing to movement and support in the body.

Aerobic Respiration

A metabolic process of energy production in cells involving oxygen to break down food molecules and produce ATP.

ATP

Adenosine Triphosphate; a nucleotide that serves as the primary energy carrier in all living organisms, driving many biological processes.

Energy Stored

The potential energy held by an object, substance, or system due to its position or state, which can be converted into work.