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Exam 24: The Us Taxation of Multinational Transactions

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Question 21

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Holmdel, Incorporated, a U.S. corporation, received the following sources of income: $11,000 interest income from a loan to its 100 percent owned Swiss subsidiary. $50,500 dividend income from its 5 percent owned French subsidiary. $100,200 royalty income from its Bermuda subsidiary for use of a trademark outside the United States. $25,100 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey. $50,100 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan. What amount of foreign source income does Holmdel have?

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Question 22

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

A) Purchase of inventory from an unrelated person in Germany and sale to a related person in Poland.
B) Purchase of inventory from a related person in Germany and sale to an unrelated person in Switzerland.
C) Purchase of inventory from a related person in Germany and sale to a related person in Poland.
D) Purchase of inventory from an unrelated person in Germany and sale to an unrelated person in Poland.

E) None of the above
F) A) and D)

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Question 23

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Rafael is a citizen of Spain and a resident of the United States. During the current year, Rafael received the following income: Compensation of $5 million from competing in tennis matches in the U.S. Cash dividends of $10,000 from a Spanish corporation that earns 50 percent of its income from sales in the United States Interest of $2,000 from a Spanish citizen who is a resident of the U.S. Rent of $5,000 from U.S. residents who rented his villa in Italy Gain of $10,000 on the sale of stock in a German corporation Determine the source (U.S. or foreign)of each item of income Rafael received.

Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2020, General Motors relocated Jimmy to its operations in Germany for the remainder of 2020. 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 12-month period. During 2020 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 2020?

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico. Gross profit from the sale of the inventory was $200,000. Title to the inventory passed FOB: shipping point. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

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

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Russell Starling, an Australian citizen and resident, received the following investment income during the current year: $5,080 of dividend income from ownership of stock in a U.S. corporation, $10,400 interest from a certificate of deposit in a U.S. bank, $3,200 of interest income earned from a loan to Clint Westwood, a U.S. citizen, and $2,100 capital gain from sale of a stock in a U.S. corporation. How much of Russell's income will be subject to U.S. taxation?

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

Gwendolyn was physically present in the United States for 90 days in 2020, 180 days in 2019, and 30 days in 2018. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2020?

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary.The dividend is eligible for the 100percent dividends received deduction. Any income taxes paid to a Spanish taxing authority will be creditable on the U.S. tax return.

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax.

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May 2020, Caterpillar relocated Janet to its operations in Spain for the remainder of 2020. Janet was paid a salary of $200,000. As part of her compensation package for moving to Spain, Janet received a housing allowance of $40,000. Janet's salary was earned ratably over the 12-month period. During 2020 Janet worked 280 days, 168 of which were in Spain and 112 of which were in the United States. How much of Janet's total compensation is treated as foreign source income for 2020?

A non-U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

Cheyenne Corporation is a U.S. corporation engaged in the manufacture and sale of mining equipment. The company handles its export sales through sales branches in Canada and Mexico. The average tax book value of Cheyenne's assets for the year was $200 million, of which $100 million generated U.S. source income and $100 million generated foreign source income. Cheyenne's total interest expense for the year was $30 million. Whatamount of interest expense can Cheyenne apportion against its foreign source gross income for foreign tax credit purposes, assuming there is no limitation on the interest expense deduction?

A U.S. corporation reports its foreign tax credit computation on which tax form?

Windmill Corporation, a Dutch corporation, is owned by the following unrelated persons: 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 F income. Which of the following statements is true about the application of subpart F to the income earned by Windmill?

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?