Question

When a company repatriates foreign earnings and repatriates cash, which of the following occur? (Select all that apply.)

a. Higher tax bill
b. Lower tax bill
c. Higher tax expense
d. Lower tax expense
e. Higher effective tax rate

Answer 1

When a company repatriates foreign earnings, it may face a higher tax bill, higher tax expense, and potentially, a higher effective tax rate due to the domestic taxation of repatriated earnings.

Step-by-step explanation:

When a company repatriates foreign earnings and repatriates cash, the following may occur:

• a. Higher tax bill: The repatriation of earnings can lead to an increased tax bill due to the taxation of foreign income once it is brought back to the company's home country.
• c. Higher tax expense: Similar to the higher tax bill, the tax expense would increase on the company's financial statements because the repatriated earnings now become subject to corporate income tax.
• e. Higher effective tax rate: The effective tax rate may increase as the repatriated earnings might be taxed at a higher rate than they were abroad, depending on the differential between foreign and domestic tax rates.

However, this can be influenced by tax credits, deductions, and tax treaties that might be in place, which can mitigate the additional tax burden.