Research Problems
Research Problem 1. Jerry Jeff Keen, the CFO of Boots Unlimited, a Texas corporation, has come to you regarding a potential restructuring of business operations.
Boots has long manufactured its western boots in plants in Texas and Oklahoma.
Recently, Boots has explored the possibility of setting up a manufacturing subsidiary in Ireland, where manufacturing profits are taxed at 10%. Jerry Jeff sees this as a great idea, given that the alternative is to continue all manufacturing in the United States, where profits are taxed at 34%.
Boots plans to continue all of the cutting, sizing, and hand tooling of leather in its
U.S. plants. This material will be shipped to Ireland for final assembly, with the finished product shipped to retail outlets all over Europe and Asia.
Your initial concern is whether the income generated by the Irish subsidiary will be considered foreign base company income. Address this issue in a research memo, along with any planning suggestions.
Research Problem 2. Polly Ling is a successful professional golfer. She is a resident of a country that does not have a tax treaty with the United States. Ling plays matches around the world, about one-half of which are in the United States. Ling’s reputation is without blemish; in fact, she is known as being exceedingly honest and upright, and many articles discuss how she is a role model for young golfers due to her tenacious and successful playing style and her favorable character traits. Every year, she reports the most penalty strokes on herself among the participants in womens’ matches, and this is seen as reinforcing her image as an honest and respectful competitor.
This combination of quality play and laudable reputation has brought many riches to Ling. She comes to you with several Federal income tax questions. She knows that as a non-U.S. resident, any of her winnings from tournament play that occurs in the United States are subject to U.S. income taxation. But what about each of the following items? How does U.S. tax law affect Ling? Apply the sourcing rules in this regard, and determine whether the graduated U.S. Federal income tax rate schedules apply.
• Endorsement income from YourGolf, for wearing clothing during matches with its logo prominently displayed. Ling must play in at least 10 tournaments per year that are televised around the world. She also must participate in photo sessions and in blogs and tweets associated with the tournaments. Payment to Ling is structured as a flat fee, with bonuses paid if she finishes in the top five competitors for each match. This is known as an on-court endorsement.
• Endorsement income from GolfZone, for letting the company use her likeness in a video game that simulates golf tournaments among known golfers and other players that the (usually middle-aged men and women) gamers identify. In this way, the gamer seems to be playing against Ling on famous golf courses. Two-thirds of all dollar sales of the game licenses are to U.S. customers.
• Endorsement income from Eliteness, for appearing in print and Internet ads that feature Ling wearing the company’s high-end watches. One-fifth of all dollar sales of the watches are to U.S. customers. The latter two items are known as off-court endorsements.
Research Problem 3. Locate data on the size of the international economy, including data on international trade, foreign direct investment by U.S. firms, and investment in the United States by foreign firms. Useful web locations include www.census.gov and www.bea.gov. Prepare an analysis of the data for a three-year period using spreadsheet and graphing software, and e-mail the results to your instructor.
Research Problem 4. For your analysis, choose 10 countries, one of which is the
United States. Create a table showing whether each country applies a worldwide or territorial approach to international income taxation. Then list the country’s top income tax rate on business profits. Send a copy of this table to your instructor.
Research Problem 5. Find the text of various tax treaties currently in force in the
United States. In an e-mail to your instructor, address the following items.
a. How does the U.S. income tax treaty with Germany define “business profits” for multinational businesses?
b. How does the U.S. income tax treaty with Japan treat the FIRPTA provisions?
c. List five countries with which the United States has entered into an estate tax treaty.
d. What is the effective date of the latest income tax treaty with the United Kingdom?
e. List five countries with which the United States does not have in force a bilateral income tax treaty.
Research Problem 1. Jerry Jeff Keen, the CFO of Boots Unlimited, a Texas corporation, has come to you regarding a potential restructuring of business operations.
Boots has long manufactured its western boots in plants in Texas and Oklahoma.
Recently, Boots has explored the possibility of setting up a manufacturing subsidiary in Ireland, where manufacturing profits are taxed at 10%. Jerry Jeff sees this as a great idea, given that the alternative is to continue all manufacturing in the United States, where profits are taxed at 34%.
Boots plans to continue all of the cutting, sizing, and hand tooling of leather in its
U.S. plants. This material will be shipped to Ireland for final assembly, with the finished product shipped to retail outlets all over Europe and Asia.
Your initial concern is whether the income generated by the Irish subsidiary will be considered foreign base company income. Address this issue in a research memo, along with any planning suggestions.
Research Problem 2. Polly Ling is a successful professional golfer. She is a resident of a country that does not have a tax treaty with the United States. Ling plays matches around the world, about one-half of which are in the United States. Ling’s reputation is without blemish; in fact, she is known as being exceedingly honest and upright, and many articles discuss how she is a role model for young golfers due to her tenacious and successful playing style and her favorable character traits. Every year, she reports the most penalty strokes on herself among the participants in womens’ matches, and this is seen as reinforcing her image as an honest and respectful competitor.
This combination of quality play and laudable reputation has brought many riches to Ling. She comes to you with several Federal income tax questions. She knows that as a non-U.S. resident, any of her winnings from tournament play that occurs in the United States are subject to U.S. income taxation. But what about each of the following items? How does U.S. tax law affect Ling? Apply the sourcing rules in this regard, and determine whether the graduated U.S. Federal income tax rate schedules apply.
• Endorsement income from YourGolf, for wearing clothing during matches with its logo prominently displayed. Ling must play in at least 10 tournaments per year that are televised around the world. She also must participate in photo sessions and in blogs and tweets associated with the tournaments. Payment to Ling is structured as a flat fee, with bonuses paid if she finishes in the top five competitors for each match. This is known as an on-court endorsement.
• Endorsement income from GolfZone, for letting the company use her likeness in a video game that simulates golf tournaments among known golfers and other players that the (usually middle-aged men and women) gamers identify. In this way, the gamer seems to be playing against Ling on famous golf courses. Two-thirds of all dollar sales of the game licenses are to U.S. customers.
• Endorsement income from Eliteness, for appearing in print and Internet ads that feature Ling wearing the company’s high-end watches. One-fifth of all dollar sales of the watches are to U.S. customers. The latter two items are known as off-court endorsements.
Research Problem 3. Locate data on the size of the international economy, including data on international trade, foreign direct investment by U.S. firms, and investment in the United States by foreign firms. Useful web locations include www.census.gov and www.bea.gov. Prepare an analysis of the data for a three-year period using spreadsheet and graphing software, and e-mail the results to your instructor.
Research Problem 4. For your analysis, choose 10 countries, one of which is the
United States. Create a table showing whether each country applies a worldwide or territorial approach to international income taxation. Then list the country’s top income tax rate on business profits. Send a copy of this table to your instructor.
Research Problem 5. Find the text of various tax treaties currently in force in the
United States. In an e-mail to your instructor, address the following items.
a. How does the U.S. income tax treaty with Germany define “business profits” for multinational businesses?
b. How does the U.S. income tax treaty with Japan treat the FIRPTA provisions?
c. List five countries with which the United States has entered into an estate tax treaty.
d. What is the effective date of the latest income tax treaty with the United Kingdom?
e. List five countries with which the United States does not have in force a bilateral income tax treaty.