Exam 25: Taxation of International Transactions

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

USCo,a U.S.corporation,reports worldwide taxable income of $500,000,including a $100,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings.What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Maxim,Inc.,a U.S.corporation,reports worldwide taxable income of $8 million,including a $900,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed E & P are $15 million and it has paid $6 million of foreign income taxes attributable to these earnings.What is Maxim's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Which of the following is a principle used in applying the income-sourcing rules under U.S.tax law?

Unused foreign tax credits are carried back two years and then forward 20 years,the same as the NOL carrryover period.

Income tax treaties provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S.statutory law.

BrazilCo,Inc.,a foreign corporation with a U.S.trade or business,has U.S.-source income as follows. ​ Determine BrazilCo's total U.S.tax liability for the year,assuming a 35% corporate rate and no tax treaty.BrazilCo leaves its U.S.branch profits invested in the United States,and it does not otherwise repatriate any of its U.S.assets during the year.

Match the definition with the correct term. a.Inbound b.Outbound c.Allocation and apportionment d.Qualified business unit e.Tax haven f.Income tax treaty g.Section 482 -Treasury powers over transfer pricing.

Which of the following statements regarding the U.S.taxation of non-U.S.persons is true?

Match the definition with the correct term. a.Expatriate b.Resident c.Nonresident alien d.U.S. trade or business e.Branch profits tax f.Effectively connected income -Rule that requires determination of the dividend equivalent amount.

OutCo,a controlled foreign corporation in Meena (located outside the U.S.),earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies.All of the dividend payors are located in Meena.OutCo's Subpart F income for the year is:

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. a.Indirect credit b.Direct credit c.One d.Two e.Ten f.Twenty g.Gross-up (§ 78) h.​Overall foreign loss -Foreign tax credit allowed when a foreign corporation makes a distribution to its parent corporation.

In international corporate income taxation,what are the uses of the "sourcing rules" in computing Federal taxable income?

Serena,a nonresident alien,is employed by GlobalCo,a non-U.S.corporation.Serena works in the United States for 3 days during the year,receiving a gross salary of $2,500 for this period.GlobalCo is not engaged in a U.S.trade or business.Under the "commercial traveler" exception,the $2,500 is not classified as U.S.-source income.

U.S.income tax treaties typically:

A domestic corporation is one whose assets are primarily located in the U.S.For this purpose,the primarily located test (>50%) applies.

Qwan,a U.S.corporation,reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows. ​ How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Hendricks Corporation,a domestic corporation,owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation,both foreign corporations.Ferrell owns the other 60 percent of Shane Corporation.Both Shane and Ferrell are CFCs.

Freda was born and continues to live in Uruguay.She exports widgets to U.S.customers.The U.S.does not have in force an income tax treaty with Uruguay.Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

PlantCo is a company based in Adagio.PlantCo uses a formula to manufacture pharmaceuticals.The formula was developed and is owned by DrugCo,a U.S.entity.Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.