LATIHAN

1. A Chinese manufacturing subsidiary produces items sold in Australia. The items cost the

equivalent of $7.00 to produce and are sold to customers for $9.50. A Cayman Islands subsidiary

buys the items from the Chinese subsidiary for $7.00 and sells them to the Australian parent for

$9.50. Required: Calculate the total amount of income taxes paid on these transactions. What

are the implications for the company and the taxing authorities involved?

2. A jewelry manufacturer domiciled in Amsterdam purchases gold from a precious metals dealer

in Belgium for 2,400. The manufacturer fabricates the raw material into an item of jewelry and

wholesales it to a Dutch retailer for 4,000.

Required: Compute the value-added tax from the jewelry manufacturer’s activities if the Dutch

value-added tax rate is 17.5 percent.