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Exam 13: The US Taxation of Multinational Transactions

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Question 1

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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.

A) True
B) False

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Question 2

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Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. Horton had post-1986 earnings and profits of C$2,400,000 and post-1986 foreign taxes of $1,600,000. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. taxable income of $2,000,000. Cruller's U.S. tax rate is 34 percent. Compute the tax consequences to Cruller as a result of this dividend.

A) Taxable income of $3,000,000, a net U.S. tax of $590,000, and a FTC carryover of $0
B) Taxable income of $3,000,000, a net U.S. tax of $680,000, and a FTC carryover of $90,000
C) Taxable income of $2,600,000, a net U.S. tax of $680,000, and a FTC carryover of $226,000
D) Taxable income of $2,600,000, a net U.S. tax of $454,000, and a FTC carryover of $0

E) All of the above
F) A) and D)

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Question 3

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A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes. For a corporation to be a CFC, it must be owned more than 50 percent by U.S. persons owning at least 10 percent of the corporation. One of the individuals could own more than 50 percent of the stock, making the corporation a CFC.

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?

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.

Ames Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2016. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the Australian government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Ames's foreign tax credit on its 2016 tax return will be:

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?

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

Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during 2016. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its production assets is $20,000,000 and $60,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $20,000,000, respectively. What is the minimum amount of interest 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?

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. The average fair market value of Cheyenne's assets was $600 million, of which $400 million generated U.S. source income and $200 million generated foreign source income. Cheyenne's total interest expense for the year was $30 million. What is the minimum amount of interest expense that Cheyenne can apportion against its foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

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.

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.

Before subpart F applies, a foreign corporation must be a CFC for how many consecutive days?

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

All passive income earned by a CFC will be treated as foreign personal holding company income under subpart F for U.S. tax purposes. Same country interest payments between related CFCs and rents and royalties derived in the active conduct of a trade or business are excluded from the definition of foreign personal holding company income under subpart F.

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?

Sushi Corporation is a 100 percent owned Japanese subsidiary of Squid, Inc., a U.S. corporation. Sushi had post-1986 earnings and profits of ¥120,000,000 and post-1986 foreign taxes of $800,000. During the current year, Sushi paid a dividend of ¥60,000,000 to Squid. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a 0 percent withholding tax. Assume an exchange rate of ¥1 = $0.010. Squid reported U.S. taxable income of $2,000,000. Squid's U.S. tax rate is 34 percent. Compute Squid's net U.S. tax liability for the current year and excess FTC, if any.

Philippe is a French citizen. During 2016 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2016, he will not be treated as a resident alien for U.S. tax purposes. The substantial presence test is calculated using a formula that takes into account days physically present in the United States in the current and immediately prior two years.

A rectangle with an inverted triangle within it is a symbol used to represent what organizational form?

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. For foreign tax credit purposes, the dividend will always be characterized as passive category income. Under the look-through rules, the dividend will be characterized based on the type of income from which it was paid.