Exam 9: Taxation of International Transactions

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Foreign tax credit allowed for withholding taxes on payments from foreign sources.

USCo, a U.S. corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000 and its U.S. tax liability before the foreign tax credit is $525,000. What is USCo's allowed foreign tax credit?

A U.S. taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect) paid or accrued.

An appropriate transfer price is one that considers the risks, assets, and functions of the persons to whom income is assigned.

The U.S. system for taxing income earned outside its borders by U.S. persons is referred to as the territorial approach, because only income earned within the U.S. border is subject to taxation.

Performance, Inc., a U.S. corporation, owns 100% of Krumb, Ltd., a foreign corporation. Krumb earns only general basket income. During the current year, Krumb paid Performance a $200,000 dividend. The foreign tax credit associated with this dividend is $30,000. The foreign jurisdiction requires a withholding tax of 30%, so Performance received only $140,000 in cash as a result of the dividend. What is Performance's total U.S. gross income reported as a result of the $140,000 cash received?

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha. The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien. Julio recognizes foreign-source income from the sale because his home country is not the U.S.

Describe and diagram the timeline that most businesses use to enter the international markets.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Ownership percentage required before a deemed paid foreign tax credit is allowed.

SunCo, a U.S. corporation, owns a number of patents related to designing sunglasses. SunCo licenses these patents to unrelated parties. SpainCo, a Spanish corporation, paid SunCo $78,000 in royalties related to these licenses. SpainCo uses the patent information in its manufacturing process in its Texas plant. WiscCo, a domestic corporation, paid SunCo $32,000 in royalties related to the licenses. WiscCo uses the patent information in its manufacturing process in its Germany manufacturing plant. How much U.S.-source royalty income did SunCo earn from these licenses?

ForCo, a subsidiary of a U.S. corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany. The income from the sale of widgets is not Subpart F foreign base company sales income.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Maximum years for a foreign tax credit carryback.

The following persons own Schlecht Corporation, a foreign corporation. Jim, U.S. individual 35\% Gina, U.S. individual 15\% Marina, U.S. individual 8\% Pedro, U.S. individual 12\% Chee, non-U.S. individual 30\% ? None of the shareholders are related. Subpart F income for the tax year is $300,000. No distributions are made. Which of the following statements is correct?

Peanut, Inc., a U.S. corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld. Peanut's worldwide taxable income is $900,000, and its U.S. Federal income tax liability before FTC is $270,000. What is Peanut's foreign tax credit?

Quest is organized and operates in the U.K. Its U.S. effectively connected earnings for the taxable year are $900,000 and its net U.S. equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

Dark, Inc., a U.S. corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany. Dark reports $100,000 of taxable income from Dunkel on its U.S. tax return, along with $400,000 of taxable income from its U.S. operations. Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 35%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

Jilt, a non-U.S. corporation, not resident in a treaty country, operates a U.S. branch that earns effectively connected E & P of $4 million for the tax year. The branch increases its investments in U.S. property (its U.S. net equity) by $1,600,000. The branch pays a U.S. corporate income tax of $2,153,846. Jilt's branch profits tax is:

Kipp, a U.S. shareholder under the CFC provisions, owns 40% of a CFC. If the CFC's Subpart F income for the taxable year is $200,000, Kipp is taxed on receipt of a constructive dividend of $80,000.

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

Which of the following statements regarding a non-U.S. person's U.S. tax consequences is true?