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Exam 24: The US Taxation of Multinational Transactions

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Question 31

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Provo Corporation received a dividend of $350,000 from its 100 percent owned German subsidiary. A deemed paid credit of $150,000 was available on the dividend. No withholding tax was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations? Assume a U.S. tax rate of 34 percent.

A) Taxable income of $350,000 and a net U.S. tax liability of $0
B) Taxable income of $350,000 and a net U.S. tax liability of $20,000
C) Taxable income of $500,000 and a net U.S. tax liability of $170,000
D) Taxable income of $500,000 and a net U.S. tax liability of $20,000

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

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Question 32

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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?

A) A person must have a green card and meet a substantial presence test to be treated as a resident alien for U.S. tax purposes.
B) A person must have a green card to be treated as a resident alien for U.S. tax purposes.
C) A person must meet a substantial presence test to be treated as a resident alien for U.S. tax purposes.
D) A person with a green card will always be treated as a resident alien for U.S. tax purposes, while a person without a green card may be treated as a resident alien if she meets a substantial presence test.

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

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Question 33

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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.

Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2014, General Motors relocated Jimmy to its operations in Germany for the remainder of 2014. 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 2014 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 2014?

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

Under a U.S. treaty, what must a non-resident corporation create in the United States before it is subject to U.S. taxation on its business profits?

Which of the following items of foreign source income is classified as passive category income for foreign tax credit purposes?

Gwendolyn was physically present in the United States for 90 days in 2014, 180 days in 2013, and 30 days in 2012. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2014?

What form is used by a U.S. corporation to "check-the-box" to elect the U.S. tax consequences of forming a hybrid entity outside the United States?

All income earned by a Swiss corporation owned by a U.S. corporation is deferred from U.S. taxation until such income is remitted back to the United States.

Austin Corporation, a U.S. corporation, received the following investment income during 2014: $50,000 of dividend income from ownership of stock in a French corporation, $20,000 interest on a loan to its Dutch subsidiary, $40,000 royalty from its 50-percent owned Irish venture, and $30,000 capital gain from sale of its stock in a Brazilian corporation. How much foreign source income does Austin have in 2014?

Knoxville Corporation, a U.S. corporation, incurred $300,000 of research and experimental (R&E) expenses during 2014. Knoxville sells inventory within the United States and abroad. Knoxville conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $10,000,000, of which $3,000,000 was from foreign source sales. Gross profit from sale of the inventory was $5,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

Silverado Corporation is a 100 percent owned Mexican subsidiary of Gold Nugget Corporation, a U.S. corporation. Silverado had post-1986 earnings and profits of 350,000,000 pesos and post-1986 foreign taxes of $15,000,000. During the current year, Silverado paid a dividend of 70,000,000 pesos to Gold Nugget. Assume an exchange rate of 1 peso = 0.10 dollars. Compute the tax consequences to Gold Nugget as a result of this dividend.

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?

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

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.

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?

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. The average fair market value of Portland's assets was $500 million, of which $400 million generated U.S. source income and $100 million generated foreign source income. Portland's total interest expense for the year was $24 million. What is the minimum amount of interest expense that Portland can apportion against its foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Vintner, S.A., a French corporation, received the following sources of income during 2014: $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 the United States. What amount of U.S. source income does Vintner have in 2014?

Absent a treaty provision, what is the statutory withholding tax rate imposed by the United States on a dividend paid by a U.S. corporation to a resident of Denmark?