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Hello,
I am looking at the answers of Q1 June 15 Acca exam, and can’t understand why no tax is paid in the USA on remittable CF in year 2.The company doesn’t pay tax in the Yilandwe in that year because of tax regulation offered in that country for FDI.
But why it is not payable in the USA? Just because the bilateral tax treaty exists?
Thank you for clarification,
I have not look at the question you are talking about but the non payment of tax on remittable cash flows might be one of the following reasons:
1) Bilateral tax treaty:
If the rate of tax in Yilandwe is high than the tax rate in US the company will always pay the highest of the two tax rates. That is the tax treaty allow you to only pay higher of the two rates. for example, if in Yilandwe tax rate is 40% and in US is 30% the US company that invested in Yilandwe will not pay any tax on remittable cash flows given that they have paid high tax rate in Yilandwe. However, if Yilandwe tax rate is 30% and US is 40% the extra 10% tax will be paid on remittable cash flows.2) Tax Allowable Depreciation:
Due carrying forward of losses as a result of tax allowable depreciation the company might not have tax charge but still have remittable cash flows.Thanks
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