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Exam 24: The Us Taxation of Multinational Transactions

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Question 41

Multiple Choice

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Absent a treaty provision, what is the statutory withholding tax rate imposed by the United States on a dividend paid by a U.S. corporation to a resident of Denmark?

A) 30%
B) 15%
C) 5%
D) 0%

E) B) and C)
F) B) and D)

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Question 42

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

A) True
B) False

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Question 43

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Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 of compensation within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?

Windmill Corporation, a Dutch corporation, is owned by the following unrelated persons: 50 percent by a U.S. corporation, 5 percent by a U.S. individual, and 45 percent by a Swiss corporation. During the year, Windmill earned $2,000,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Windmill?

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?

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%.

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

Gouda, S.A., a Belgium corporation, received the following sources of income during 2016: $10,000 interest income from a loan to its 100 percent owned Dutch subsidiary $20,000 dividend income from its 100 percent owned U.S. subsidiary $30,000 royalty income from its Irish subsidiary for use of a trademark outside the United States $40,000 rent income from its Canadian subsidiary for use of a warehouse located in Wisconsin $5,000 capital gain from sale of stock in its 40 percent owned New Zealand joint venture. Title passed in New Zealand. What amount of U.S. source income does Gouda have in 2016?

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?

Silverado Corporation is a 100 percent owned Mexican subsidiary of Gold Nugget Corporation, a U.S. corporation. Silverado had post-1986 earnings and profits of 350,000,000 pesos and post-1986 foreign taxes of $15,000,000. During the current year, Silverado paid a dividend of 70,000,000 pesos to Gold Nugget. Assume an exchange rate of 1 peso = 0.10 dollars. Compute the tax consequences to Gold Nugget as a result of this dividend.

A U.S. corporation reports its foreign tax credit computation on which tax form?

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.

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?

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?

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. Horton had post-1986 earnings and profits of C$2,400,000 and post-1986 foreign taxes of $1,600,000. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. taxable income of $2,000,000. Cruller's U.S. tax rate is 34 percent. Compute the tax consequences to Cruller as a result of this dividend.

Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

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?

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.

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?