USAco is a domestic corporation that manufactures products in the U.S. for distribution in the U.S. and abroad. During t
Posted: Thu May 19, 2022 1:49 pm
USAco is a domestic corporation that
manufactures products in the U.S. for distribution in the U.S. and
abroad. During the current year, USAco derives a pre-tax profit of
$10 million, which includes $1 million of foreign-source income
derived from a branch sales office in country X. The country X
corporate income tax rate is 30% and the U.S. tax rate is 21%.
a. What would be the
worldwide effective tax rate on the $1 million of foreign profits,
assuming the U.S. taxes the worldwide income of domestic
corporations, but allows an unlimited credit for foreign income
taxes?
b. What would be the
worldwide effective tax rate on the $1 million of foreign profits,
assuming the U.S. allows a credit for foreign income taxes, but the
credit is limited to the U.S. tax attributable to foreign-source
income?
c. Would your answer to
part (b) change if the foreign tax rate was 15% rather than
30%?
manufactures products in the U.S. for distribution in the U.S. and
abroad. During the current year, USAco derives a pre-tax profit of
$10 million, which includes $1 million of foreign-source income
derived from a branch sales office in country X. The country X
corporate income tax rate is 30% and the U.S. tax rate is 21%.
a. What would be the
worldwide effective tax rate on the $1 million of foreign profits,
assuming the U.S. taxes the worldwide income of domestic
corporations, but allows an unlimited credit for foreign income
taxes?
b. What would be the
worldwide effective tax rate on the $1 million of foreign profits,
assuming the U.S. allows a credit for foreign income taxes, but the
credit is limited to the U.S. tax attributable to foreign-source
income?
c. Would your answer to
part (b) change if the foreign tax rate was 15% rather than
30%?