Question

Boston Beanery, a U.S.-based company, establishes a branch in Great Britain in January of Year 1, when the exchange rate is US $ 1.30 per British pound (£). During Year 1, the British branch generates £ 5,000,000 of pretax income. On October 15, Year 1, £ 2,000,000 is repatriated to Boston Beanery and converted into U.S. dollars. Assume the effective income tax rate in Great Britain is 19 percent. Taxes were paid in Great Britain on December 31, Year 1. Relevant exchange rates for Year 1 are provided here (US $ per £):

January 1: 1.30

Average: 1.4

October 15: 1.45

December 31: 1.5

Assume a U.S. tax rate of 21 percent.

Determine the amount of U.S. taxable income, U.S. foreign tax credit, and net U.S. tax liability related to the British branch (all in U.S. dollars).

Answer 1

solution & profit & 5000 OOO and taxe 19% The value £ 5000000 % 19%. € 950000 » Net profit transferred to us = £ 5000ooo- €950000 =€ 4050000 Im US $ - UOSO Ovo X14 - $ 5670 000 income in Boston Beanery Total & Treable at average confusion rate = SOUUOOOX 14 = $ 7000000 os taxes = 7000000 x 21% Taxable income = $1470.000 - Foreign credit = 950ooox 1.50 (paid on Dec 31) = $1425000 - Net Tone liability = Toolable income foreign credit = 1470 000 – 1425000 $ 45000