Short answer questions
1. Nations typically structure their tax systems along one of two basic approaches: the worldwide approach or the territorial approach. Explain these two approaches and how they differ from each other.
The worldwide approach of taxes is where the domestic country of a company taxes the company on it’s overall income including income that was earned through foreign business transactions. The United States uses a worldwide approach taxing all US companies on all income earned. “The primary problem is that this does not address the income earned by foreign firms operating within the United States” (Moffett, Stonehill, & Eiteman, 2015, p. 355). The territorial approach is then used. The territorial approach of taxes is …show more content…
In one instance in 2013, a conflict occurred after China adopted the value-added tax when China Film Group had argued they should not have to pay the value-added tax on movie tickets. “The new formula, which calculates the American share without first subtracting the fees and taxes, resulted in a sharp reduction of profits at the China Film Group, which remains the clearinghouse for nearly all foreign films imported” (Cieply & Barnes, 2013). The proposal of the value-added tax in the United States has brought up issues of the revenue for the government from the tax that consumers would be unaware of, the taxes being passed along to consumers to have to pay higher prices for goods unknowingly, as well as the regulation needed for its implementation. “VATs are typically included in the price of goods and services rather than listed separately as with sales tax, which can obscure the cost of the tax for consumers” (Sablik, …show more content…
356). Tax treaties are formed between two countries and stipulate what income can be taxed at what rate. Multinational companies must be aware of the treaty terms in order to budget accordingly for the tax rates. Imports and exports are a concern because “a firm that only exports would not want any of its other worldwide income taxed by the importing country” (Moffett, Stonehill, & Eiteman, 2015, p. 357). If an exporter must pay taxes to its home country, it does not want the same taxes charged for the same goods in the country to which the goods are
1. Nations typically structure their tax systems along one of two basic approaches: the worldwide approach or the territorial approach. Explain these two approaches and how they differ from each other.
The worldwide approach of taxes is where the domestic country of a company taxes the company on it’s overall income including income that was earned through foreign business transactions. The United States uses a worldwide approach taxing all US companies on all income earned. “The primary problem is that this does not address the income earned by foreign firms operating within the United States” (Moffett, Stonehill, & Eiteman, 2015, p. 355). The territorial approach is then used. The territorial approach of taxes is …show more content…
In one instance in 2013, a conflict occurred after China adopted the value-added tax when China Film Group had argued they should not have to pay the value-added tax on movie tickets. “The new formula, which calculates the American share without first subtracting the fees and taxes, resulted in a sharp reduction of profits at the China Film Group, which remains the clearinghouse for nearly all foreign films imported” (Cieply & Barnes, 2013). The proposal of the value-added tax in the United States has brought up issues of the revenue for the government from the tax that consumers would be unaware of, the taxes being passed along to consumers to have to pay higher prices for goods unknowingly, as well as the regulation needed for its implementation. “VATs are typically included in the price of goods and services rather than listed separately as with sales tax, which can obscure the cost of the tax for consumers” (Sablik, …show more content…
356). Tax treaties are formed between two countries and stipulate what income can be taxed at what rate. Multinational companies must be aware of the treaty terms in order to budget accordingly for the tax rates. Imports and exports are a concern because “a firm that only exports would not want any of its other worldwide income taxed by the importing country” (Moffett, Stonehill, & Eiteman, 2015, p. 357). If an exporter must pay taxes to its home country, it does not want the same taxes charged for the same goods in the country to which the goods are