Exam 16: Us Taxation of Foreign-Related Transactions

Quality Corporation created a foreign subsidiary in Country C this year.The subsidiary receives components from Quality,assembles the components into a finished product using local labor,and sells them to unrelated wholesalers in Countries A,B,and C using its own sales force.The foreign subsidiary has paid no dividends to the parent this year.What tax issues should Quality's Director of Taxes consider with respect to these activities?

What are the consequences of classification as a corporate inversion?

Alan,a U.S.citizen,works in Germany and earns $70,000,paying $20,000 in German taxes.His U.S.income is $40,000 and he pays $8,000 in U.S.taxes.His U.S.taxes on his worldwide income are $22,500.What is Alan's foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion.

Karen,a U.S.citizen,earns $40,000 of taxable income from U.S.sources,$20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B.The U.S.tax rate is 25%.The tax on Country A income is $8,000,and Country B charges no tax on the interest income.Assuming only a single basket is required,Karen's foreign tax credit that can be claimed is

Describe the financial statement implications of the foreign tax credit and a foreign subsidiary.

Identify which of the following statements is false.

U)S.Corporation,a domestic corporation,owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year,Foreign Corporation suffers a $100,000 net operating loss (NOL)in France.What amount of the $100,000 NOL can U.S.Corporation use to reduce its current-year U.S.taxable income?

Excess foreign tax credits can be carried back one year and forward five years.

Compare the U.S.tax treatment of a nonresident alien and a resident alien,both of whom earn U.S.trade or business and U.S.investment income.

A U.S.citizen,who uses a calendar year as his tax year,is transferred to a foreign country by his employer.The U.S.citizen arrived in the foreign country on November 3 of last year.Residency is expected to be maintained in the foreign country until August 4 of next year.None of the years are a leap year.The first year for which an earned income exclusion can be claimed is

Identify which of the following statements is true.

Income derived from the sale of merchandise inventory (i.e. ,final goods purchased for resale)are sourced in the country where the sale occurs.

Guinness Corporation,a U.S.corporation,began operating overseas in the current year.This year,Guinness sold machine tools that it manufactured in the United States to Canadian companies from a branch office located in Toronto,purchased a 40% investment in a Brazilian corporation from which it received a dividend,and received royalties from an English firm that is the licensee of machine tool patents held by Guinness.The English firm uses the patents to manufacturer machine tools it sells in England.What international tax issues should Guinness's Director of Taxes consider with respect to these activities?

Discuss the use of a "tax haven" nation to reduce taxes and the effect of Subpart F rules on such planning.

A foreign corporation with a single class of stock is owned 8% by Bert,49% by Xi Yong,30% by Ernie,and 13% by Mark.Bert,Ernie,and Mark are U.S.citizens,and Xi Yong is a nonresident alien.Bert is Ernie's son.Is the foreign corporation a controlled foreign corporation (CFC)?

Identify which of the following statements is true.

Pedro,a nonresident alien,licenses a patent to a U.S.company for an $11 per unit fee for each unit produced.As a result of receiving the fee,Pedro must recognize the fee as