Question

YEAR 2017

USAco, a domestic corporation, manufactures and sells widgets in the US and worldwide through its two wholly-owned foreign subsidiaries, FORco-A (a Country A subsidiary) and FORco-B (a Country B subsidiary). During year 2018, FORco-A had $10 million of sales income to Country A customers, paid $1 million in foreign income taxes and distributed no dividends. FORco-B had $20 million of sales income to Country B customers, paid $3 million in foreign income taxes and distributed no dividends.

During the current year, USAco had $20 million of income from their domestic manufacturing and sales. Assume FORco-A had all of their undistributed foreign earning in cash equivalents and FORco-B had all of their undistributed earning invested in equipment.

Compute USAco's residual US tax liability. Assume US tax rate is 35% and that USAco's does not elect any deffered payment of taxes.

Directions: Fill in USAco's Tax Return (YEAR 2017)

US Sourced Income............................... _________ million

FORco-A Dividend.................................__________million

FORco-A Section 78..............................__________million

FORco-B Dividend...............................___________million

FORco-B Section 78............................___________million

Net Section 965 inclusion (15% cash)....._________million

Total......................................................______________

US Taxable Income.............................____________million

US Tax Rate.........................................____x35%_____

Total......................................................._______________

Pre-credit US Tax................................_____________million

Foreign Tax Credits............................._____________million

Total....................................................._______________

Residual US Tax................................._______________million

YEAR 2018

During Year 2018, FORco-A had $10 million in sales of income to Country A customers, paid $1 million in foreign income taxes and distribuetd an $18 million dividend. FORco-B had $20 million of sales income to Country B customers, paid $3 million in foreign income taxes and distributed $34 million in dividends.

During the current year, USAco had $20 million of income from their domestic manufacturing and sales and received a $6 milion dividend from FORco-B. Compute USAco's residual US tax liability. Assume the US tax rate is 21% (and FORco's US tax basis in its assets exceed GILTI limits)

Directions: Fill in USAco's Tax Return (YEAR 2018)

US Sourced Income............................... _________ million

FORco-A Dividend.................................__________million

FORco-A Section 78..............................__________million

FORco-B Dividend...............................___________million

FORco-B Section 78............................___________million

Net Section 965 inclusion (15% cash)....._________million

Total......................................................______________

US Taxable Income.............................____________million

US Tax Rate.........................................____x35%_____

Total......................................................._______________

Pre-credit US Tax................................_____________million

Foreign Tax Credits............................._____________million

Total....................................................._______________

Residual US Tax................................._______________million

Answer 1

USAco income from domestic source of income 100000 USAco income from sales from hongkong USAco income from sales from canada 100000 tax liability- USA co income from domestic source of income tax liability USAco income from sales from hongkong tax liability USAco income from sales from canada 100000 100000"35%-35000 100000(35-20) = 100000 15%= 15000 100000(35-40) 100000"5% 5000 Total tax liability 35000+15000 5000 45000 tax liability The U.S. has what is often called a "worldwide" system of taxation that requires American businesses to pay the 35 percent federal corporate tax rate on their income no matter where it is earned-domestically or abroad.[1] First, companies operating in foreign countries pay income taxes to the country in which those profits were earned. For example, if a subsidiary of a U.S. firm earns $100 in profits in England, it pays the United Kingdom corporate income tax rate of 21 percent (or $21) on those profits.[2] When those profits are brought back to the United States, an additional tax equal to the difference between the U.S. tax rate of 35 percent and the UK corporate rate of 21 percent ($14 in this case) is collected by the IRS. Between the two nations, the U.S. firm will have paid a total of $35, or 35 percent, in taxes on its foreign profits To arrive at a 35 percent effective tax rate on corporate foreign earnings, the IRS affords U.S. corporations a foreign tax credit against U.S. taxes equal to the corporate taxes they paid to foreign governments. When corporations repatriate their foreign earnings, they are required to report how much income they earned in each country they operated in and how much they paid those countries in corporate income taxes. The credit U.S. corporations receive is equal to the corporate income taxes paid to foreign governments on foreign earned income that is returned to the U.S reference: http://taxfoundation.org/article/how-much-do-us-multinational-corporations-pay-foreign income