Unit 12: International Taxation - Practice Quiz

1 What is a foreign collaboration?

2 Which party usually provides technology in a technology-based foreign collaboration?

3 What is a joint venture in the context of foreign collaboration?

4 Which of the following is a common form of foreign collaboration?

5 What does a royalty payment commonly represent in a foreign collaboration?

6 Which item may be transferred through a foreign collaboration?

7 Why may a domestic company enter into a foreign collaboration?

8 What is a major tax consideration when a domestic company pays a foreign collaborator?

9 What is the purpose of a tax treaty in an international collaboration?

10 Which document commonly records the terms of a foreign collaboration?

11 What is meant by the incidence of taxation?

12 A domestic company is generally taxed in its home country on income according to what?

13 Which income is commonly included when determining a company's taxable income?

14 What is corporate income tax charged on?

15 What is the usual effect of a deductible business expense on taxable income?

16 Which tax may be collected by a company from customers on taxable sales?

17 Who normally has the legal responsibility to file a domestic company's tax return?

18 What is double taxation of corporate income?

19 Which tax is commonly withheld from payments made by a company to its employees?

20 What is one possible economic effect of corporate taxation on a domestic company?

21 An Indian company pays a royalty to its foreign collaborator for using patented manufacturing technology in India. What is the Indian company's primary tax compliance obligation before remitting the royalty?

22 A foreign collaborator licenses technology to an Indian company. The applicable tax rate is 20% under domestic law and 10% under the relevant tax treaty. The collaborator satisfies all treaty conditions. Which rate should generally be applied?

23 An Indian manufacturer purchases standard, off-the-shelf machinery from a foreign supplier without receiving any right to use the supplier's intellectual property. How should the payment ordinarily be characterized?

24 A foreign engineering company sends employees to India for eight months to supervise the installation of a plant. Under the applicable treaty, a construction or installation site becomes a permanent establishment after six months. What is the likely result?

25 An Indian subsidiary buys components from its foreign parent at prices substantially above those charged to independent customers. Which international tax rule is most directly relevant?

26 A collaboration agreement separately states consideration for machinery, technical services, and a patent licence. Why is this separation important for tax purposes?

27 A foreign collaborator provides managerial advice entirely from abroad, while the applicable treaty taxes fees for technical services only when technical knowledge is made available to the customer. No knowledge is transferred. What is the strongest treaty-based position?

28 An Indian company agrees that its foreign collaborator must receive a net royalty of $900,000 after Indian withholding tax of 10%. If the contract requires tax gross-up, what is the gross royalty?

29 A foreign parent provides an interest-free loan to its Indian subsidiary when comparable independent lenders would charge interest. Which issue is most likely to arise?

30 An Indian company reimburses a foreign collaborator for travel expenses at actual cost, but the reimbursement is inseparably linked to taxable technical services. What is the most appropriate initial tax analysis?

31 A company qualifies as an Indian domestic company and earns business profits through a branch outside India. How is its foreign branch income generally treated in India?

32 An Indian domestic company earns foreign income of $200,000 and pays foreign income tax of $30,000. Indian tax attributable to the same income is $40,000. Ignoring other limits, what foreign tax credit is generally available?

33 An Indian company earns foreign income of $100,000, pays foreign tax of $25,000, and faces Indian tax of $18,000 on that income. Ignoring carry-forward rules, what credit can ordinarily be claimed in India?

34 A domestic company pays income tax in a foreign country on profits also taxable in India. The tax treaty between the countries follows the credit method. How is double taxation generally relieved?

35 A domestic company has an overseas permanent establishment. The applicable treaty uses the exemption method for profits attributable to that establishment. What is the expected Indian tax treatment?

36 An Indian domestic company receives a dividend from its wholly owned foreign subsidiary. Which statement best describes the initial tax implication in India?

37 An Indian company claims foreign tax credit for tax paid by its overseas branch but has no evidence of payment or deduction. What is the main practical weakness in its claim?

38 A domestic company has foreign-source income of $500,000 and deductible expenses of $120,000 directly related to earning it. If Indian tax is computed on the net foreign income at 25%, what is the Indian tax attributable to that income?

39 An Indian domestic company earns income in a country with which India has no tax treaty and pays income tax there. Which relief should the company examine first under Indian law?

40 A domestic company earns profits in two foreign countries. It pays tax at a high rate in one country and incurs a loss in the other. Why should it avoid assuming that all foreign amounts can be freely combined for tax-credit purposes?

41 An Indian company agrees to pay a foreign collaborator a royalty of ₹90 lakh net of Indian tax. The applicable tax rate on the gross royalty is , and the foreign collaborator has no permanent establishment in India. Under the grossing-up rule, what amount should be treated as the gross royalty and tax withheld?

42 A royalty paid by an Indian company to a treaty-resident foreign collaborator is taxable at under the Income-tax Act and at under the applicable tax treaty. The recipient satisfies the treaty documentation and beneficial-ownership requirements. Which rate generally applies?

43 An Indian enterprise purchases standard software from a foreign supplier under a non-exclusive, non-transferable licence. It may use the software internally but cannot reproduce, modify, commercially distribute, or exploit the copyright. Under a treaty defining royalty as consideration for the use of, or right to use, copyright, how should the payment generally be characterized?

44 A foreign collaborator owns technology licensed to an Indian company and also operates a permanent establishment in India. The licence is effectively connected with that permanent establishment. The applicable treaty follows the OECD structure. Which article normally governs the royalty?

45 An Indian company pays its foreign associated enterprise a royalty of of sales of ₹50 crore. A reliable uncontrolled transaction involving the same technology and comparable conditions establishes an arm's-length rate of , with no comparability adjustment required. What is the primary transfer-pricing adjustment?

46 An Indian company remits a composite amount to a foreign collaborator. Only an identifiable portion is chargeable to tax in India. Which statement best reflects the payer's obligation under section 195?

47 An Indian company pays ₹12 crore under a divisible collaboration contract: ₹8 crore for machinery sold offshore, with title and risk passing outside India, and ₹4 crore for taxable technical services rendered to the Indian company. The foreign enterprise has no Indian permanent establishment. Assuming the technical-service rate is and no gross-up applies, what is the withholding amount?

48 A foreign collaborator recovers travel costs from an Indian company at exact cost, without a markup. Which factor is most important in deciding whether the reimbursement itself contains taxable income?

49 An Indian resident company pays a nonresident for technical services used exclusively in a manufacturing business carried on through the payer's foreign branch, and the services earn income solely from sources outside India. Under section 9(1)(vii)(b), what is the strongest conclusion?

50 A multinational routes an Indian technology licence through a treaty-country conduit whose only material function is obtaining a lower royalty withholding rate. The treaty contains the standard Principal Purpose Test. When may the treaty benefit be denied?

51 An Indian-incorporated domestic company is effectively managed outside India throughout the year and earns no Indian-source income. What is its Indian residential and tax position under the Income-tax Act?

52 An Indian company earns ₹100 lakh from Country X and ₹100 lakh from Country Y. Foreign taxes are ₹30 lakh and ₹5 lakh, respectively. Indian tax attributable to each source is ₹20 lakh. Assuming foreign tax credit is limited separately by country and source, what total credit is available?

53 A domestic company earns foreign branch profit of ₹50 lakh. The source country taxes it by ₹15 lakh, while Indian tax attributable to the same income is ₹12.5 lakh. Assume the credit method applies and no carry-forward of excess foreign tax is permitted. What is the result?

54 A domestic company receives a foreign dividend of ₹9 lakh after foreign withholding tax of ₹1 lakh. India taxes the gross dividend at an effective rate of , and full credit for the withholding tax is otherwise available. What amounts are included in income and additionally payable in India?

55 A domestic company owns all shares of a foreign subsidiary, which retains its profits abroad and declares no dividend. There is no sham arrangement, no transfer-pricing adjustment, and no specific anti-avoidance provision applies. Which statement best reflects India's general corporate tax framework?

56 A domestic company has ₹12 crore of Indian business profit and a ₹4 crore genuine loss from its foreign branch. Assume the branch is part of the same legal entity, the loss is allowable under ordinary Indian computation rules, and no treaty exemption applies. What is the company's business income before other adjustments?

57 An Indian domestic company has ₹10 lakh of income doubly taxed in a country with which India has no tax treaty. Its Indian average rate of tax is , while the foreign average rate is . Assuming section 91 applies, what unilateral relief is available?

58 A domestic company disputes part of the foreign income tax assessed on income already offered to tax in India. Under the foreign tax credit rules, how is the disputed portion generally treated?

59 A domestic company earns a gross foreign dividend of ₹40 lakh and incurs ₹10 lakh of expenditure directly attributable to that dividend. Foreign tax withheld is ₹8 lakh. Indian tax on the corresponding net income is . Assuming no other limitation, what foreign tax credit is available?

60 Foreign tax of on a domestic company's overseas income is withheld on 15 September. The relevant telegraphic transfer buying rates are ₹81 per dollar on 31 July, ₹82 per dollar on 31 August, and ₹83 per dollar on 30 September. Under the prescribed foreign tax credit conversion rule, what is the rupee value before applying the credit limitation?