McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 47

Chapeau Company, a U..corporation, operates through a branch in Champagnia.The source rules used by Champagnia are identical to those used by the United States.For 2011, Chapeau has $2,000 of gross income, $1,200 from U..sources and $800 from sources within Champagnia.The $1,200 of U..source income and $700 of the foreign source income are attributable to manufacturing activities in Champagnia (general category income).The remaining $100 of foreign source income is passive category interest income.Chapeau had $500 of expenses other than taxes, all of which are allocated directly to manufacturing income ($200 of which is apportioned to foreign sources).Chapeau paid $150 of income taxes to Champagnia on its manufacturing income.The interest income was subject to a 10 percent withholding tax of $10.Assume the U..tax rate is 35%.Compute Chapeau's allowable foreign tax credit in 2011.