Parent and Minor Form a Non-Unitary Group of Corporations

question 201

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%, while 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) All of the above are effective income-shifting techniques for a non-unitary group.
• E) None of the above is an effective income-shifting technique for a non-unitary group.

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Definitions:

Freight-In

Costs associated with the shipping of raw materials or goods into a production facility or warehouse, typically included in the inventory cost.

Inventory Decreased

A situation where the quantity of goods available for sale by a business is reduced, typically because of sales or use.

Purchases

The total amount of goods and materials acquired by a business for resale or production within an accounting period.

Cost of Goods Available

The total cost of a company's inventory that is available for sale during a certain period.