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Exam 13: The US Taxation of Multinational Transactions

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Question 41

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Which statement best describes the U.S. framework for taxing multinational transactions?

A) The U.S. government applies source-based taxation to income earned by U.S. and non-U.S. persons.
B) The U.S. government applies residence-based taxation to income earned by U.S. and non-U.S. persons.
C) The U.S. government applies residence-based taxation to income earned by U.S. persons and source-based taxation to income earned by non-U.S. persons.
D) The U.S. government applies source-based taxation to income earned by U.S. persons and residence-based taxation to income earned by non-U.S. persons.

E) B) and C)
F) All of the above

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Question 42

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Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service. A taxpayer can switch from the tax book value method to the fair market value method without permission of the commissioner of the Internal Revenue Service.

A) True
B) False

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Question 43

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Which of the following foreign taxes are not creditable for U.S. tax purposes?

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax. Because Canada imposes an income tax, the withholding tax is creditable as an "in lieu of" tax.

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. Income that is characterized as subpart F income could be treated as a deemed dividend back to the United States in the year earned by the foreign corporation.

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations. Only corporations owning 10 percent or more of a foreign corporation are eligible for the deemed paid credit.

Orleans Corporation, a U.S. corporation, manufactures boating equipment. Orleans reported sales from this product group of $200 million, of which $80 million were foreign source sales. The gross profit percentage for domestic sales was 20%, and the gross profit percentage from foreign sales was 10%. Orleans incurred R&E expenses of $15 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?

Rainier Corporation, a U.S. corporation, manufactures and sells quidgets in the United States and Europe. Rainier conducts its operations in Europe through a German GmbH, which the company elects to treat as a branch for U.S. tax purposes. Rainier also licenses the rights to manufacture quidgets to an unrelated company in China. During the current year, Rainier paid the following foreign taxes, translated into U.S. dollars at the appropriate exchange rate: What amount of creditable foreign taxes does Rainier incur?

A rectangle with a triangle within it is a symbol used to represent what organizational form?

What form is used by a U.S. corporation to "check-the-box" to elect the U.S. tax consequences of forming a hybrid entity outside the United States?

Which of the following persons should not be treated as a "U.S. shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

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. 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?

Pierre Corporation has a precredit U.S. tax of $510,000 on $1,500,000 of taxable income in 2016. Pierre has $300,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $90,000 of foreign income taxes on the general category 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 2016 U.S. tax return and what is the amount of the carryforward, if any?

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2016. Included in the computation of taxable income was foreign source taxable income of $200,000, of which $87,500 was a dividend received from the corporation's 100 percent owned subsidiary in Ireland. The dividend brought with it a deemed paid credit of $12,500. In addition, a withholding tax of $4,375 was imposed on the dividend. Compute Boca Corporation's net U.S. tax liability for 2016. Assume a U.S. tax rate of 34 percent.

Which statement best describes the U.S. framework for determining if an individual who is not a U.S. citizen will be treated as a resident alien for U.S. tax purposes?

Portsmouth Corporation, a British corporation, is a wholly owned subsidiary of Salem Corporation, a U.S. corporation. During the year, Portsmouth reported the following income: $250,000 interest income received from a loan to an unrelated French corporation $100,000 dividend income received from a less than 1 percent owned unrelated Dutch corporation $150,000 rent income from an unrelated British corporation on property Portsmouth actively manages $500,000 gross profit from the sale of inventory manufactured by Portsmouth in Great Britain and sold to a 100 percent owned subsidiary in Germany What amount of subpart F income does Portsmouth recognize in the current year?

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S. shareholders in the year the subpart F income is earned. The subpart F income could be excluded from being a deemed dividend under a de minimis rule if the gross amount of the income is less than the lesser of $1 million or five percent of gross income.

Rafael is a citizen of Spain and a resident of the United States. During 2016, Rafael received the following income: Compensation of $5 million from competing in tennis matches in the U.S. Cash dividends of $10,000 from a Spanish corporation that earns 50 percent of its income from sales in the United States Interest of $2,000 from a Spanish citizen who is a resident of the U.S. Rent of $5,000 from U.S. residents who rented his villa in Italy Gain of $10,000 on the sale of stock in a German corporation Determine the source (U.S. or foreign) of each item of income Rafael received in 2016.

Boca Corporation, a U.S. corporation, received a dividend of $800,000 from its 100 percent owned Swiss subsidiary. A deemed paid credit of $200,000 was available on the dividend. A five percent withholding tax ($40,000) was imposed on the dividend. What amount of taxable income does the dividend generate on Boca's U.S. tax return and what is the company's net U.S. tax, assuming the company broke even on its other operations and the FTC limitation is not binding? Use a U.S. tax rate of 34 percent.