Question

An investor from Thailand invests in a U.S. stock. The stock does well pays all shareholders a dividend. The U.S. imposes a withholding tax on the dividend paid to the Thai investor. The purpose of this withholding tax on dividend income is to A) raise the effective as rate of the local host country. B) provide an incentive for MNEs to pay higher dividends to their parent companies. C) obtain a minimum tax payment on the incomes of dividend income receipts. D) encourage MNEs to reposition profits outside of their countries.

Answer 1

Option C holds true

The Government withholds the tax so as to ensure that the dividend income is taxed at source itself. By this manner they are able to obtain a minimum tax payment on the dividend income of the investor. Other options are invalid as regards to withhoding tax.