Kaplan AC559 Unit 4 Assignment Latest
AC559
Unit 4 Assignment
1. Tireco, a domestic corporation, is a tire manufacturer. Tireco is planning to build a new production facility, and has narrowed down the possible sites for this new plant to either Goodstan (a low-tax foreign country) or Badstan (a high-tax foreign country). Tireco will structure the new facility as a wholly-owned foreign subsidiary, Sproutco, and finance Sproutco solely with an equity investment.
2. Six years ago, Bullco, Inc., a domestic manufacturer of mold- injection systems, established a sales and service operation in Madrid, Spain. The Madrid office was structured as a Spanish corporation, but Bullco made a check-the-box election to treat the operation as a branch in order to obtain a U.S. tax deduction for the branch’s start-up losses. The Spanish operation has become quite profitable and Bullco wishes to change its United States tax classification from a branch to a subsidiary by filing a new check-the-box election (this is feasible since 5 years had passed since the first election). At the time of the conversion, the Spanish operation’s assets includes some local currency, accounts receivable from Spanish customers, an inventory of spare parts, and an extensive database of information regarding Spanish customers that the marketing personnel had painstakingly developed over the years. Bullco’s CFO has asked you to brief her regarding the United States tax consequences of the incorporation transaction. Briefly outline your response.
3. A foreign corporation can structure its United States operations as either a branch or a subsidiary. What are the tax advantages of operating in the United States through a separately incorporated subsidiary? What are the tax advantages of operating in the United States through an unincorporated branch? What general business factors should be considered when choosing between the branch and subsidiary forms of doing business in the United States?
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