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

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Question 21

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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?

A) U.S. trade or business.
B) Permanent establishment.
C) The physical presence of at least one employee.
D) The physical presence of an asset such as a warehouse.

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

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Question 22

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

A) 1
B) 30
C) 183
D) 365

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

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Question 23

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Austin Corporation, a U.S. corporation, received the following investment income during 2018: $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 2018?

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

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

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2018?

The United States generally taxes U.S. sourced 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. 

Pierre Corporation has a precredit U.S. tax of $315,000 on $1,500,000 of taxable income in 2018. Pierre has $300,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $60,000 of foreign income taxes on the foreign branch income and $15,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Pierre use on its 2018 U.S. tax return and what is the amount of the carryforward, if any?

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. source taxable income of $2,000,000 before considering the dividend received from Horton Corporation. Compute the tax consequences to Cruller as a result of this dividend.

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. 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?

Marcel, a U.S. citizen, receives interest income from bonds issued by a Dutch corporation. The interest income will be considered U.S. source income for U.S. tax purposes.

Vintner, S.A., a French corporation, received the following sources of income during 2018: $20,000 interest income from a loan to its 100 percent owned U.S. subsidiary $30,000 dividend income from its 5 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 2018?

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 2018?

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?

A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

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.

Polka Corporation is a 100 percent owned Poland subsidiary of Pierogi Inc., a U.S. corporation. During the current year, Polka paid a dividend of €525,000 to Pierogi. The dividend was subject to a withholding tax of €26,250. Assume an exchange rate of €1 = $1.50. Pierogi reported U.S. taxable income of $1,000,000. Compute Pierogi's net U.S. tax liability for the current year and excess FTC, if any.

Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

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.