What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$.

This year the company expects to generate Z$ 10 million profit after tax.

Tax Regime:

• Corporate income tax rate in country Y is 50%

• Corporate income tax rate in country Z is 20%

• Full double tax relief is available

Assume an exchange rate of Y$ 1 = Z$ 5.

What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?
A . Y$ 1.25 million
B . Y$ 1.00 million
C . Y$ 31.25 million
D . Y$ 4.00 million

View Answer

Answer: A