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Exam 13: The US Taxation of Multinational Transactions

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Question 31

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Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2016. Taxable income included $1,800,000 of foreign source taxable income from the company's branch operations in Canada. All of the branch income is general category income. Reno paid Canadian income taxes of $720,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2016. Use a U.S. corporate tax rate of 34%.

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A net U.S. tax of $1,428,000 and an exce...

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Question 32

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Obispo, Inc., a U.S. corporation, received the following sources of income during 2016: $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 $50,000 royalty income from its Irish subsidiary for use of a trademark within the United States $40,000 rent income from its Dutch subsidiary for use of a warehouse located in Belgium $3,000 capital gain from sale of stock in its 40 percent owned Mexican joint venture. Title passed in the United States. What amount of foreign source income does Obispo have in 2016?

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$70,000
Explanation: Foreign s...

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Question 33

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

The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S. source income. Under §863(b), special apportionment rules apply. Under the 50/50 method, which is one of three elective methods of apportioning gross income, 50 percent of the gross profit will be treated as foreign source income if title passes outside the United States.

Alex, a U.S. citizen, became a resident of Belgium in 2016. Alex will no longer be subject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty. The United States taxes its citizens on a worldwide basis. Alex will continue to be subject to U.S. tax on income he earns in Belgium.

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 2016?

To be eligible for the "closer connection" exception to the physical presence test, an individual must be in the United States for less than how many days?

Austin Corporation, a U.S. corporation, received the following investment income during 2016: $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 2016?

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

A deemed paid credit is available on which of the following dividends received by a U.S. corporation?

Gwendolyn was physically present in the United States for 90 days in 2016, 180 days in 2015, and 30 days in 2014. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2016?

Camellia Corporation, a U.S. corporation, incurred $600,000 of research and experimental (R&E) expenses during 2016. Camellia sells inventory within the United States and abroad. Camellia conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $20,000,000, of which $12,000,000 was from foreign source sales. Gross profit from sale of the inventory was $8,000,000, 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?

Vintner, S.A., a French corporation, received the following sources of income during 2016: $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 2016?

Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?

Emerald Corporation is a 100 percent owned Irish subsidiary of Shamrock, Inc., a U.S. corporation. Emerald had post-1986 earnings and profits of €2,625,000 and post-1986 foreign taxes of $525,000. During the current year, Emerald paid a dividend of €525,000 to Shamrock. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of €26,250. Assume an exchange rate of €1 = $1.50. Shamrock reported U.S. taxable income of $1,000,000. Shamrock's U.S. tax rate is 34 percent. Compute Shamrock's net U.S. tax liability for the current year and excess FTC, if any.

Nicole is a citizen and resident of Australia. She has a full-time job in Australia and has lived there with her family for the past 10 years. In 2014, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2015 and stayed for 150 days. In 2016 she came back to the United States on business and stayed for 100 days. Does Nicole meet the U.S. statutory definition of a resident alien in 2016 under the substantial presence test?

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 was 30%. 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?

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. Under the 50/50 method, 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?

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

Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?