Question

Some of our international trade partners have accused our government of having unfair tax ws that artificially inflate costs and thus reduce corporate taxable income. This tax advantage, our trading partners argue, gives U.S. corporations a competitive advantage. Explain the accusation and how it gives U.S. corporations an advantage?

Answer 1

• The costs of merchandise purchase and of other supplies for the business are considered here.
• The unfair taxes increase the costs as the cost of merchandise purchased includes the tax collected by the supplier on that merchandise.
• The inflated costs will result in increased total of expenses and cost of goods sold.
• That ultimately results in lower corporate income and taxes payable on that lower income.
• Lower corporate tax enables to have lower tax laibilities and affects the profitability.
• So the accusation of giving competitive advantage to U.S. Corporation is correct based on the unfair taxes.