INTERNATIONAL TAXATION

Special Terms

Pre-text assignment

A. Match these terms with their definitions

Tax holiday, branch, direct tax, subsidiary, value-added tax, tax treaty, accelerated depreciation, indirect tax, withholding tax, taxable earnings, transfer pricing, tax haven

a) A tax that is levied on individuals and corporations.

b) A value-added tax, such as a sales tax or import duty.

c) Earnings after all tax-deductible items, such as interest on loans, deprecia­
tion, and sales expenses, have been subtracted.

d) Writing off an asset as a tax deduction at a substantially higher rate in the
first years than in the later years. This allows for smaller taxable earnings in the first
years of the life of a corporation.

 

e) An indirect tax levied at each stage of the production cycle or at the sale of
consumer goods. The lax is assessed in proportion to the value added during that
stage.

f) A direct tax withheld from a foreign corporation in a foreign country. It is
levied on interest paid on foreign loans as well as on dividends which are remitted to
the parent company.

g) A treaty between two nations, which lowers or abolishes withholding taxes
on interest and dividends, thus avoiding double taxation (i.e., taxation in the host
country as well as in the home country).

h) The absence of a corporation tax for a set number of years, in order to attract foreign investment.

i) A country where certain taxes are low or nonexistent, so that the country can benefit from increased commercial and financial activity.

j) Pricing of goods bought and sold between associated companies. The goal is to minimize taxes by selling products that are manufactured in one country to a con­sumer country through a tax-haven subsidiary.

k) An extension of a parent company but not a separate independent entity.

1) An extension, legally separated from but controlled by a parent company.

B. Vocabulary Practice

1. Give one example of a direct tax and one of an indirect tax.

1. How does one arrive at taxable earnings?

3. Why would a company benefit from using accelerated depreciation?

4. Define value added fax.

5. What is a withholding tax levied on? How are withholding taxes lessened?
Can they disappear altogether?

6. What does lax holiday mean?

7. Define tax haven.

8. What is the purpose of transfer pricing? How does it work?

9. What is the main difference between a branch and a subsidiary?