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Exam 24: The US Taxation of Multinational Transactions

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Question 41

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Which of the following persons should not be treated as a "U.S. shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

A) A U.S. corporation owning 15 percent of the CFC.
B) A U.S. citizen owning 15 percent of the CFC.
C) A U.S. citizen owning 5 percent of the CFC.
D) All of the above named persons are U.S. shareholders for subpart F purposes.

E) B) and C)
F) A) and D)

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Question 42

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Under most U.S. treaties, a resident of the other country must have a permanentestablishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

A) True
B) False

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Question 43

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Philippe is a French citizen. During 2017 he spent 150 days in the United States onbusiness. Because Philippe does not spend 183 days in the United States in 2017, he will not under any circumstances be treated as a resident alien for U.S. tax purposes.

Wooden Shoe Corporation is a 100 percent owned Dutch subsidiary of Tulip Corporation, a U.S. corporation. Wooden Shoe had post-1986 earnings and profits of €3,000,000 and post-1986 foreign taxes of $1,000,000. During the current year, Wooden Shoe paid a dividend of €300,000 to Tulip. Assume an exchange rate of €1 = $1.40. No withholding tax was imposed on the dividend. What amount of taxable income does the dividend generate on Tulip's U.S. tax return?

Which of the following transactions engaged in by a Swiss controlled foreign corporation creates foreign base company sales income?

A hybrid entity established in Ireland is treated as a flow-through entity for U.S. tax purposes and a corporation for Irish tax purposes.

A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

The United States generally taxes U.S. sourced fixed and determinable, annual orperiodic income (FDAP) earned by non-U.S. persons by applying a withholding tax to the gross amount of income.

Which of the following is not a benefit derived from an income tax treaty between theUnited States and another country?

The foreign tax credit regime is the primary mechanism used by the United Statesgovernment to mitigate or eliminate the potential double taxation of income earned byU.S. persons outside the United States.

Windmill Corporation, a Dutch corporation, is owned by the following unrelatedpersons: 50 percent by a U.S. corporation, 5 percent by a U.S. individual, and 45 percent by a Swiss corporation. During the year, Windmill earned $2,000,000 of subpart Fincome. Which of the following statements is true about the application of subpart F tothe income earned by Windmill?

Boca Corporation, a U.S. corporation, received a dividend of $800,000 from its 100 percent owned Swiss subsidiary. A deemed paid credit of $200,000 was available on the dividend. A five percent withholding tax ($40,000) was imposed on the dividend. What amount of taxable income does the dividend generate on Boca's U.S. tax return and what is the company's net U.S. tax, assuming the company broke even on its other operations and the FTC limitation is not binding? Use a U.S. tax rate of 34 percent.

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.

Which statement best describes the U.S. framework for determining if an individual who is not a U.S. citizen will be treated as a resident alien for U.S. tax purposes?

Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2017, General Motors relocated Jimmy to its operations in Germany for the remainder of 2017. Jimmy was paid a salary of $250,000. As part of his compensation package for moving to Germany, Jimmy received a cost of living allowance of $30,000, which was paid to him only while he worked in Germany. Jimmy's salary was earned ratably over the twelve month period. During 2017 Jimmy worked 260 days, 130 of which were in Germany and 130 of which were in the United States. How much of Jimmy's total compensation is treated as foreign source income for 2017?

Kiwi Corporation is a 100 percent owned Australian subsidiary of Exotic Fruit Corporation, a U.S. corporation. Kiwi had post-1986 earnings and profits of 1,000,000 Australian dollars (AUD) and post-1986 foreign taxes of $225,000. During the current year, Kiwi paid a dividend of 250,000 AUD to Exotic Fruit. Assume an exchange rate of 1 AUD = $0.75. No withholding tax was imposed onthe dividend. What amount of taxable income does the dividend generate on Exotic's U.S. tax return?

Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

Which of the following statements best describes the operation of subpart F as it applies to income earned by a foreign corporation?

Vintner, S.A., a French corporation, received the following sources of income during 2017:$20,000 interest income from a loan to its 100 percent owned U.S. subsidiary.$30,000 dividend income from its 100 percent owned Canadian subsidiary.$100,000 royalty income from its Irish subsidiary for use of a trademark within the United States.$100,000 rent income from its Mexican subsidiary for use of a warehouse located in Arizona.$50,000 capital gain from sale of stock in its 40 percent owned German joint venture. Title passed in theUnited States.What amount of U.S. source income does Vintner have in 2017?

Deductible interest expense incurred by a U.S. corporation will always be treated as aU.S. source deduction.