Glossary Chapter 16 current cost approach the approach that attempts to reflect the true value of asset transactions when assets are valued at their current or inflation-adjusted cost, and depreciation is based on these costs, usually on a straight-line basis. direct taxes calculated on the actual income of a firm or an individual. fronting a loan occurs when the subsidiary deposits funds, which are held by the bank as collateral for a loan they in turn provide to the parent company. Generally Accepted Accounting Principles (GAAP) a set of accounting rules used to standardize the reporting of financial statements throughout a country. historic cost principal the principle where inflation is not to be accounted for in a nation’s accounting records, rather assets are valued according to their net book value. indirect taxes the kind of tax that includes sales taxes, goods and services taxes, provincial sales taxes, health taxes, death taxes, severance taxes, tariffs, and value-added taxes that are applied to the purchase price, material costs, quantities of natural resources, and commodities. intra-subsidiary netting this occurs when a firm’s internal divisions sell to each other using the head office clearing accounts so that their sales and their internal debits and credits are quickly electronically entered into the firms accounts to include currency conversion where necessary. Mittelstand private German companies, whose capital has traditionally been provided by the banking sector. residential approach this approach to international taxation determines the tax owing regardless of where the income is earned. tax avoidance seeking to pay the least amount of tax as possible as provided for by law. tax competition nations attempt to persuade investors to established offshore operations in their country. tax evasion the illegal practice of intentionally evading taxes. tax haven a country that provides a no-tax or low-tax environment. territorial approach this approach to international taxation taxes entities within its territorial jurisdiction regardless of the country of residence. transaction costs the costs paid to the market makers by buyers and sellers to acquire or sell debt and equity instruments. transfer prices prices charged between parents and subsidiaries and between two subsidiaries for goods and services provided by one to the other.