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Answer: a higher share of its profit in countries with higher marginal tax rates.
## Explanation The key insight comes from analyzing the "Effect of tax rates in foreign jurisdictions" line: - **Year T-2**: 2% - **Year T-1**: 4% This component represents the impact of operating in foreign jurisdictions with tax rates different from the domestic statutory rate. A **positive** effect means the company is operating in countries with **higher** tax rates than the domestic rate. **Analysis:** - In Year T-1, the foreign jurisdiction effect increased from 2% to 4% - This indicates the company generated a **larger proportion** of its profits in countries with higher tax rates - The effective tax rate remained at 30% despite the domestic statutory rate decreasing from 30% to 28% because the increased foreign tax burden offset the domestic rate reduction **Conclusion:** The company most likely generated a **higher share** of its profit in countries with higher marginal tax rates in Year T-1 compared to Year T-2.
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An analyst gathers the following information about a company's tax disclosures:
| Item | Year T–1 | Year T–2 |
|---|---|---|
| Statutory domestic tax rate | 28% | 30% |
| Effect of tax rates in foreign jurisdictions | 4% | 2% |
| Effect of tax exemptions and other reconciling items | –2% | –2% |
| Effective tax rate | 30% | 30% |
Compared to Year T–2, in Year T–1 the company most likely generated:
A
a lower share of its profit in countries with higher marginal tax rates.
B
the same proportion of profit in countries with higher marginal tax rates.
C
a higher share of its profit in countries with higher marginal tax rates.