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Exam 24: The US Taxation of Multinational Transactions

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Question 1

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Which of the following statements best describes how the deemed paid credit is computed by a U.S. corporation?

A) The foreign subsidiary's post-1986 earnings and profits and post-1986 foreign taxes are kept in functional currency.
B) The foreign subsidiary's post-1986 earnings and profits are kept in functional currency and the post-1986 foreign taxes are kept in U.S. dollars.
C) The foreign subsidiary's post-1986 earnings and profits are kept in U.S. dollars and the post-1986 foreign taxes are kept in functional currency.
D) The foreign subsidiary's post-1986 earnings and profits and post-1986 foreign taxes are kept in U.S. dollars.

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

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Question 2

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Which of the following tax benefits does not arise when a U.S. corporation forms a corporation in Ireland through which to earn business profits in Ireland?

A) Flow-through of losses from the Irish corporation to the tax return of the U.S. corporation.
B) Potential deferral of U.S. tax on income earned by the corporation.
C) Treaty benefits on cross border payments between the Irish corporation and the U.S. corporation.
D) Use of transfer pricing to shift income between the United States and Ireland.

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

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Question 3

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Orleans Corporation, a U.S. corporation, manufactures boating equipment. Orleans reported sales from this product group of $200 million, of which $80 million were foreign source sales. The gross profit percentage for domestic sales was 20%, and the gross profit percentage from foreign sales was10%. Orleans incurred R&E expenses of $15 million, all of which were conducted in the United States. What is the minimum amount of the R&E expense that can be apportioned to foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Alex, a U.S. citizen, became a resident of Belgium in 2017. Alex will no longer besubject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty.

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.

Silverado Corporation is a 100 percent owned Mexican subsidiary of Gold NuggetCorporation, a U.S. corporation. Silverado had post-1986 earnings and profits of350,000,000 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 ofthis dividend.

Ames Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2017. Ames has $600,000 of foreign source taxable income and paid $120,000 ofincome 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' foreign tax credit on its 2017 tax return will be:

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during 2017. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its U.S. production assets is $20,000,000 and $50,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $10,000,000, 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?

Under which of the following scenarios could Charles, a citizen of England, be eligible to claim the "closer connection" exception to the substantial presence test in 2017?

Hazelton Corporation, a U.S. corporation, manufactures golf equipment. Hazelton reported sales from this product group of $100 million, of which $40 million were foreign source sales. The gross profit percentage for domestic sales was 20%, and the gross profit percentage from foreign sales was30%. Hazelton incurred R&E expenses of $10 million, all of which were conducted in the United States. What is the minimum amount of the R&E expense that can be apportioned to foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Jesse Stone is a citizen and bona fide resident of Great Britain. During 2017, Jesse received the following income:Compensation of $10 million from performing concerts in the United States. Cash dividends of $20,000 from a U.S. corporation.Interest of $1,000 from a U.S. citizen who is a resident of Ireland.Rent of $10,000 from British residents who rented Jesse's townhouse in Orlando, Florida. Gain of $50,000 on the sale of stock in a U.S. corporation.Determine the source (U.S. or foreign) of each item of income Jesse received in 2017.

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in2017. Included in the computation of taxable income was foreign source taxable income of $200,000, of which $87,500 was a dividend received from the corporation's 100percent owned subsidiary in Ireland. The dividend brought with it a deemed paid creditof $12,500. In addition, a withholding tax of $4,375 was imposed on the dividend. Compute Boca Corporation's net U.S. tax liability for 2017. Assume a U.S. tax rate of 34 percent.

Pierre Corporation has a precredit U.S. tax of $510,000 on $1,500,000 of taxable income in 2017. Pierre has $300,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $90,000 of foreign income taxes on the general categoryincome and $15,000 of foreign income taxes on the passive category income. Whatamount of foreign tax credit (FTC) can Pierre use on its 2017 U.S. tax return and what is the amount of the carryforward, if any?

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

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

Which statement best describes the U.S. framework for taxing multinational transactions?

Rainier Corporation, a U.S. corporation, manufactures and sells quidgets in the United States and Europe. Rainier conducts its operations in Europe through a German GmbH, which the company elects to treat as a branch for U.S. tax purposes. Rainier also licenses the rights to manufacturequidgets to an unrelated company in China. During the current year, Rainier paid the following foreigntaxes, translated into U.S. dollars at the appropriate exchange rate: What amount of creditable foreign taxes does Rainier incur?

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

Gwendolyn was physically present in the United States for 90 days in 2017, 180 days in2016, and 30 days in 2015. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2017?

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