Exam 13: The US Taxation of Multinational Transactions

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2016?

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

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2016: $10,000 interest income from a loan to its 100 percent owned Swiss subsidiary $50,000 dividend income from its 100 percent owned French subsidiary $100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States $25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey $50,000 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan. What amount of foreign source income does Holmdel have in 2016?

Flint Steel Corporation has a precredit U.S. tax of $170,000 on $500,000 of taxable income in 2016. Flint has $200,000 of foreign source taxable income and paid $80,000 of income taxes to the German government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Flint's foreign tax credit on its 2016 tax return will be:

One of the tax advantages to 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.

Spartan Corporation, a U.S. company, manufactures widgets for sale in the United States and Europe. All manufacturing activities take place in the United States. During the current year, Spartan sold 100,000 widgets to European customers at a price of $5 each. Each widget costs $2 to produce. All of Spartan's production assets are located in the United States. For each independent scenario, determine the source of the gross profit from sale of the widgets using the 50/50 method. A. Spartan ships its widgets B. Spartan ships its widgets F.O.B., place of destination. F.O.B., place of shipment.

Marcel, a U.S. citizen, receives interest income from bonds issued by a Dutch corporation. The interest income will be considered U.S. source income for U.S. tax purposes. The interest is sourced based on the residence of the corporation paying the interest.

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. Amy is subject to U.S. taxation under residence-based taxation.

Natsumi is a citizen and resident of Japan. She has a full-time job in Japan and has lived there with her family for the past 20 years. In 2014, Natsumi came to the United States on business and stayed for 240 days. She came to the United States again on business in 2015 and stayed for 120 days. In 2016 she came back to the United States on business and stayed for 120 days. Does Natsumi meet the U.S. statutory definition of a resident alien in 2016 under the substantial presence test?

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during 2016. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its U.S. production assets is $20,000,000 and $50,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $10,000,000, respectively. What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

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?

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. Under the Code, compensation earned in the United States is U.S. source income and subject to tax if the individual was in the United States for more than 90 days and the compensation exceeds $3,000. If Cecilia were a resident of a country with which the United States has a treaty, she could be exempt from U.S. taxation under a treaty provision that allows her to work in the United States for more than 90 days during the year.

Which of the following statements best describes the substantial presence test as it applies to determining if a non U.S. citizen is a resident alien for U.S. tax purposes?

Jesse Stone is a citizen and bona fide resident of Great Britain. During 2016, 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 2016.

Bismarck Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2016. Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the general category income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its 2016 U.S. tax return and what is the amount of the carryforward, if any?

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?

Ypsi Corporation has a precredit U.S. tax of $780,000 on $2,000,000 of taxable income in 2016. Ypsi has $400,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $180,000 of foreign income taxes on the general category 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 2016 U.S. tax return and what is the amount of the FTC carryforward, if any?

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?

Knoxville Corporation, a U.S. corporation, incurred $300,000 of research and experimental (R&E) expenses during 2016. Knoxville sells inventory within the United States and abroad. Knoxville conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $10,000,000, of which $3,000,000 was from foreign source sales. Gross profit from sale of the inventory was $5,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?