Answer:
a. Foreign source gross income on Canadian sales* $1,250,000
Foreign source gross income on U.K. sales* 1,250,000
Dividend from Australian subsidiary 670,000
§78 gross-up for deemed paid income taxes 330,000
Foreign source gross income $3,500,000
Creditable foreign income taxes
Canadian income taxes 600,000
U.K. income taxes 700,000
Deemed paid credit on Australia dividend 330,000
Total creditable income taxes $1,630,000
* Under §863(b), 50 percent of the gross income from sales is foreign source because title to the goods passes outside the United States.
b. Gross income from U.S. sales $15,000,000
Gross income from Canada and U.K. sales 5,000,000
Gross income from Australia sales 3,000,000
Dividend from Australia subsidiary 670,000
§78 gross-up on dividend from Australia subsidiary 330,000
Total gross income $24,000,000
Interest expense 600,000
Taxable income $23,400,000
x U.S. tax rate x 0.35
Precredit U.S. tax $ 8,190,000
FTC limitation
Foreign source gross income (from A above) $3,500,000
Less: Apportioned interest expense (20%) 120,000
Foreign source taxable income $3,380,000
Taxable income $23,400,000
FTC limitation = $3,380,000 / $23,400,000 x $8,190,000 $1,183,000
Creditable foreign income taxes 1,630,000
Excess foreign income tax credit $ 447,000
Precredit U.S. income tax $8,190,000
Foreign tax credit 1,183,000
Net U.S. income tax $7,007,000
ܝܢ Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to...
Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United States, Canada, England, and Australia Spartan markets its products in Canada and England through branches in Toronto and London, respectively. Spartan reported total gross income on U.S. sales of $8,000,000 and total gross income on Canadian and U.K. sales of $4,000,000, split equally between the two countries. Spartan paid Canadian income taxes of $480,000 on its branch profits in Canada and...
Emerald Corporation is a 100 percent owned Irish subsidiary of Shamrock, Inc., a U.S. corporation. Emerald had earnings and profits of $3,937,500 and paid foreign taxes of $525,000 in the current year. During the current year, Emerald paid a dividend of $787,500 to Shamrock. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of $39,375. Shamrock reported U.S. taxable income of $1,000,000 not including the dividend. Shamrock's U.S. tax rate...
ABC, Inc., a domestic corporation, owns 100% of HighTax, a foreign corporation. HighTax has $50,000,000 of undistributed E & P, all of which is attributable to general limitation income, and $30,000,000 of foreign income taxes paid. HighTax distributes a $5,000,000 dividend to ABC. The dividend, which is subject to a 5% foreign withholding tax, is ABC's only item of income during the year. The U.S. tax rate is 35%. a. ABC's deemed-paid taxes on the dividends are $, and the...
Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2018, Chapeau has $8,800 of gross income: $5,280 from U.S. sources and $3,520 from sources within Champagnia. The $5,280 of U.S. source income and $3,080 of the foreign source income are attributable to manufacturing activities in Champagnia (foreign branch income). The remaining $440 of foreign source income is passive category interest income. Chapeau...
Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2019, Chapeau has $10,800 of gross income: $6,480 from U.S. sources and $4,320 from sources within Champagnia. The $6,480 of U.S. source income and $3,780 of the foreign source income are attributable to manufacturing activities in Champagnia (foreign branch income). The remaining $540 of foreign source income is passive category interest income. Chapeau...
Growco, a domestic corporation, is a manufacturer. Growco is planning to build a new production facility, and has narrowed down the possible sites for this new plant to either Happystan (a low tax foreign country) or Sadstan (a high tax foreign country). Growco will structure the new facility as a wholly-owned foreign subsidiary, Sproutco, and finance Sproutco solely with an equity investment. Growco projects that Sproutco’s results during its first year of operations will be as follows: Sales................................................................................ $400,000 Cost...
Peninsula Technologies Co. is a U.S. firm that sells electronic equipment. One of its foreign subsidiaries had $3.4 m of taxable income in the fiscal year. Calculate what the foreign and U.S. taxes would be on this income in the two cases presented below: Baseline Values : Case 1 /Case 2 a. Foreign corporate income tax rate 28% / 40% b. U.S. corporate income tax rate 35% / 35% c. Foreign dividend withholding tax rate 0% / 10% d. U.S....
Peninsula Technologies Co. is a U.S. firm that sells electronic equipment. One of its foreign subsidiaries had $3.4 m of taxable income in the fiscal year. Calculate what the foreign and U.S. taxes would be on this income in the two cases presented below: Baseline Values : Case 1 /Case 2 a. Foreign corporate income tax rate 28% / 40% b. U.S. corporate income tax rate 35% / 35% c. Foreign dividend withholding tax rate 0% / 10% d. U.S....
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...
Dunne, Inc., a U.S. corporation, earned $500,000 in total taxable income, including $50,000 in foreign-source taxable income from its branch manufacturing operations in Brazil and $20,000 in foreign-source income from interest earned on bonds issued by Dutch corporations. Dunne paid $25,000 in Brazilian income taxes and $3,000 in Dutch income taxes. Compute Dunne’s U.S. tax liability after any available FTCs. Dunne’s U.S. tax rate is 21%.