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Exam 13: The U.S. Taxation of Multinational Transactions

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Question 51

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Portland Corporation is a U.S. corporation engaged in the manufacture and sale of fishing equipment. The company handles its export sales through sales branches in Canada and Norway. The average tax book value of Portland's assets for the year was $300 million, of which $250 million generated U.S. source income and $50 million generated foreign source income. Portland's total interest expense for the year was $24 million. What amount of interest expense can Portland apportion against its foreign source gross income for foreign tax credit purposes, assuming there is no limitation on the interest expense deduction?

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$4 million
Under the tax book ...

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Question 52

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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.

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Question 53

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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.

Rafael is a citizen of Spain and a resident of the United States. During 2018, 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 in 2017.

"Outbound taxation" deals with the U.S. tax rules that apply to U.S. persons doing business outside the United States.

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2018: $10,000 interest income from a loan to its 100 percent owned Swiss subsidiary $50,000 dividend income from its 5 percent owned French subsidiary $100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States $25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey $50,000 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 in 2018?

All passive income earned by a CFC will be treated as foreign personal holding company income under subpart F for U.S. tax purposes.

Russell Starling, an Australian citizen and resident, received the following investment income during 2018: $5,000 of dividend income from ownership of stock in a U.S. corporation, $10,000 interest from a certificate of deposit in a U.S. bank, $3,000 of interest income earned from a loan to Clint Westwood, a U.S. citizen, and $2,000 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 in 2018?

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 of compensation while working within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?