Under the old US tax regime, a firm earns $1 million before tax in Spain and...
Under the old US tax regime, a firm earns $1 million before tax in Spain and pays Spanish tax of $400,000. The firm remits the remaining $600,000as a dividend to its U.S. parent. The U.S. tax rate is 35 percent. The parent will owe U.S. tax on this dividend of?
$350,000
$140,000
zero. It will also receive a foreign tax credit of $50,000.
$210,000
Homework Answers
C.Zero.It will also receive a foreign tax credit of $50,000.
working:
$400,000 is paid in spain.
| income considered for tax purposes in US | $1,000,000 | |
| less:tax at us rate 35% | (350,000) | |
| but tax already paid in spain | 400,0000 | |
| so tax to be paid in USA | nil | |
| tax credit in usa (400,000-350,000) | 50,000 |
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