Question

Which of the following strategies exploits the fact that tax rates vary by activity (e.g., income type)?

A. Tax Deferral

B. Tax Arbitrage

C. Tax Shifting

D. Tax Integration

Answer 1

The correct option is C. The strategy that exploits the fact that tax rates vary by activity is Tax Shifting.

Step-by-step explanation:

The strategy that exploits the fact that tax rates vary by activity (e.g., income type) is Tax Shifting. Tax shifting involves shifting the burden of taxation from one group to another by strategically adjusting the tax base or tax rate. This strategy takes advantage of the variation in tax rates for different income types or activities to minimize the tax liability.

For example, a company may choose to engage in activities that are taxed at a lower rate or take advantage of tax deductions and exemptions to reduce their overall tax burden. By understanding the tax code and navigating the different tax rates for various income types, individuals and businesses can legally reduce their tax liability.

Tax Shifting is a commonly used strategy to optimize tax planning and minimize the tax burden while staying within the limits of the law.