Exam 13: Jurisdictional Issues in Business Taxation

Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

Which of the following activities create state income tax nexus?

Which of the following statements concerning the taxation of a U.S. multinational corporation is true?

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Fleming paid $200,000 income tax to CountryA. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

A controlled foreign corporation is a foreign corporation in which U.S. shareholders own more than 50% of the voting power or stock value.

The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.

Multi-State, Inc. does business in two states. Its apportionment percentage in state A is 63%. Its apportionment percentage in the other state can be no more than 37%.

Orchid Inc., a U.S. multinational with a 34% marginal tax rate, owns a foreign subsidiary operating in a country with a 25% income tax. This year, the subsidiary generated $400,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no subpart F income?

Logan, an Indiana corporation, conducts its international business through 100% controlled foreign subsidiaries. This year, Logan's U.S. source taxable income was $5,431,000, and it received $12,250,000 dividends from its foreign subsidiaries. Logan paid no foreign income tax itself, but its subsidiaries paid foreign income tax at a 30% rate. Logan's U.S. income tax (35% rate) is:

Lilly Inc., a U.S. multinational with a 34% marginal tax rate, conducts a branch operation in a foreign country with a 25% income tax. This year, the branch generated $500,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the branch operation?

Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows. Global paid $25,000 income tax to Country X. What is Global's U.S. tax liability if it takes the foreign tax credit?

The deemed paid foreign tax credit treats a U.S. corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Fleming paid $50,000 income tax to Country A. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Mega paid $20,000 income tax to Country M. Mega has a $25,000 foreign tax credit carryforward. What is Mega's U.S. tax liability if it takes the foreign tax credit?

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

Which of the following statements about the foreign tax credit is true?

The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.

Transfer pricing issues arise:

Stockholm Imports Inc., a U.S. multinational, received a $500,000 dividend from its foreign subsidiary. The subsidiary paid $112,000 foreign income tax with respect to this dividend. Stockholm's U.S. tax rate is 34%. If Stockholm has no other foreign source income, compute its deemed paid foreign tax credit.