International Accounting
International Accounting
5th Edition
ISBN: 9781259747984
Author: Doupnik, Timothy S., Finn, Mark T., Gotti, Giorgio
Publisher: Mcgraw-hill Education,
Question
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Chapter 8, Problem 1Q
To determine

Determine the manner in which a country’s tax system, affect the manner in which an operation in that country is financed by a foreign investor.

Expert Solution & Answer
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Explanation of Solution

Income Tax:

Income earned by a taxable person during a financial year is subject to income tax, payable by the tax payer to the government. Income tax is computed by applying income tax provisions and rates.

Companies may invest in equity or debt in a foreign company. Companies would prefer the option in which more amount is remitted back whether in form of dividend or interest.

A country’s tax system may impose different tax rates for dividend payments or interest payments to foreign investors. When a country provides tax benefits in case of dividend payments, then investing companies choose to invest as capital contribution and vice versa.

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