Business
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IBM-416-Chapter13-AccountingTaxes1.pptxChapter 13 Tax & Accounting Issues
International Business
Parent Company
Foreign Sales Corporation
Parent Company
FSC
Foreign Sales
Corporation in a Qualifying
Host Country
Step 1 – Step Up FSC
Foreign Sales Corporation
Parent Company
FSC
Foreign Sales
Corporation
Step 1 – Step Up FSC
Customer
Step 2 – Sell to Customer
Foreign Sales Corporation
Parent Company
FSC
Foreign Sales
Corporation
Step 1 – Step Up FSC
Customer
Step 2 – Sell to Customer
Step 3 – Pays FSC
Foreign Sales Corporation
Parent Company
FSC
Foreign Sales
Corporation
Customer
Step 2 – Sell to Customer
Step 3 – Pays FSC
Step 4 – FSC
Earns
Commission
From
Parent
Company
Foreign Sales Corporation
Parent Company
FSC
Foreign Sales
Corporation
Foreign Sales Corporation
1. Gets to deduct commission paid to FSC as an expense
2. Must claim annual dividends from FSC as income
1. Once a year pays a dividend to parent company
2. FSC must pay franchise taxes and fees in the foreign country
How it benefits the Parent Corporation
| Parent Corporation | FSC | |
| Reports Sales Income | $ 200,000 | |
| Pays franchise fees & taxes in foreign country | X | |
| Pays Commission | X | 10% Commission = $ 20,000 |
| Deducts commission paid as tax expense | X | |
| Pays dividends to parent company | X | |
| Receives dividends and claims as income | X |
Duty Drawback
Requirements to obtain and file for a duty drawback
File a proposal with the regional commissioner of customs – PRIOR to exporting the products
Maintain significant documentation to ensure compliance
This includes all original documents of imported items
Must file within 5 years if remanufactured
Must file within 3 years if left unaltered
Duty Drawback
Import a product from another company
Teak wood from Brazil
Use the teak wood to create a new product made here in the United States
A small table
Export the table to Sweden
U.S. company can file for the refund of the original import duty on the teak wood
Value Added Tax (VAT)
Used outside the United States
In countries from Europe to Asia, South Africa, and Latin America
A ‘national’ sales tax
Not directly collected by seller (distributor) from end user (customer)
Can be over 20%
May actually be a larger source of federal income tax than personal or corporate taxes
Mattel International
Mattel Headquarters U.S.A
Value Added Tax (VAT)
The path of a doll paying a 15%
Mattel buys the plastic to build a doll at it’s plant in China for $10,000 and pays the plastic company $1,500 in VAT who in turns pays the Chinese government
Mattel makes the dolls and sells them to a toy store for $20,000 – the toy store pays the $20,000 plus $3,000 in VAT
Mattel pays $1,500 of the toy store’s VAT payment to the government
The toy store sells the dolls for $25,000 to its customers and collects $3,750 in VAT
The toy store pays the government $750 in VAT
Value Added Tax (VAT)
Plastic Co.
Toy Store
Mattel
$1,500
$1,500
$750
Collects $1,500 VAT
Collects $3,000 VAT
Collects $3,750 VAT
