Exam 13: The U.S. Taxation of Multinational Transactions

Obispo, Inc., a U.S. corporation, received the following sources of income during 2018: $20,000 interest income from a loan to its 100 percent owned U.S. subsidiary. $30,000 dividend income from its 5 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 2018?

Ypsi Corporation has a precredit U.S. tax of $420,000 on $2,000,000 of taxable income in 2018. Ypsi has $400,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $100,000 of foreign income taxes on the foreign branch income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its 2018 U.S. tax return and what is the amount of the FTC carryforward, if any?

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Saginaw Steel Corporation has a precredit U.S. tax of $105,000 on $500,000 of taxable income in 2018. Saginaw has $200,000 of foreign source taxable income and paid $60,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its 2018 tax return will be:

Jesse Stone is a citizen and bona fide resident of Great Britain. During 2018, Jesse received the following income: Compensation of $10 million from performing concerts in the United States Cash dividends of $20,000 from a U.S. corporation Interest of $1,000 from a U.S. citizen who is a resident of Ireland Rent of $10,000 from British residents who rented Jesse's townhouse in Orlando, Florida Gain of $50,000 on the sale of stock in a U.S. corporation Determine the source (U.S. or foreign) of each item of income Jesse received in 2018.

Provo Corporation, a U.S. corporation, received a dividend of $350,000 from its 100 percent owned German subsidiary. A withholding tax of $35,000 was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations?

One of the tax advantages to an individual using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

Ames Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in 2018. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the U.K. government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Ames's foreign tax credit on its 2018 tax return will be:

U.S. corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100%-owned foreign corporations.

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S. individuals outside the United States.

Nicole is a citizen and resident of Australia. She has a full-time job in Australia and has lived there with her family for the past 10 years. In 2016, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2017 and stayed for 150 days. In 2018 she came back to the United States on business and stayed for 100 days. Does Nicole meet the U.S. statutory definition of a resident alien in 2018 under the substantial presence test?

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2018. Boca also received a dividend of $100,000 from the corporation's 100 percent owned subsidiary in Italy. The Italian government imposed a withholding tax of $5,000 on the dividend. Compute Boca Corporation's net U.S. tax liability for 2018.

The gross profit from a sale of inventory manufactured in the United States and sold by a U.S. retailer to a customer in Spain will always be treated as 100 percent U.S. source income.

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

Which of the following tax benefits does not arise when a U.S. corporation forms a corporation in Ireland through which to earn business profits in Ireland?

Amy is a U.S. citizen. During the year she earned income from an investment in a French company. Amy will be subject to U.S. taxation on her income under the principle of source-based taxation.

Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $3,000,000 of subpart F income. Which of the following statements is True about the application of subpart F to the income earned by Boomerang?

Appleton Corporation, a U.S. corporation, reported total taxable income of $10,000,000 in 2018. Taxable income included $2,500,000 of foreign source taxable income from the company's branch operations in the United Kingdom. All of the branch income is foreign branch income. Appleton paid U.K. income taxes of $500,000 on its branch income. Compute Appleton's net U.S. tax liability and any foreign tax credit carryover for 2018.

Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?