Case 11-1 U. S. INternational Corporation (USIC), a U.S. taxpayer, has investmen
ID: 2448306 • Letter: C
Question
Case 11-1
U. S. INternational Corporation (USIC), a U.S. taxpayer, has investments in Foreign Entities A-G. Relevant info for current fiscal year is as follows
Entity Country % Owned Activity Pre tax income (millions) INcome tax rate Dividend Withholding Net
received
USIC United states - Manuf $10 35% - -
A Argentina 100% Manuf $1 35% 0% $0.2
B Brazil 100 Manuf $2 34 0 2.0
C Canada 100 Manuf 3 26 5 1.0
D Hong Kong 100 Investment 2 16.5 0 1.5
E Lichtenstein 100 Distribution 3 10 4 0
F Japan 51 Manuf 2 38 5 0.5
G New Zealand 60 Banking 4 28 5 1.0
Additional Information
1. USIC's $10 million income before taxes is derived from the production and sale of products in the United States
2. Each entity is legally incorporated in its hosy country other than Entity A, which is registered with Argentinian government branch
3. Entities A,B,C, and F produce market products in their home countries.
4. Entity D makes passive investments in stocks and bonds in the Hong Kong financial markets. Income is derived solely from dividends and interest.
5. Entity E markets good purchased from (manufactured by) USIC. Of E's sales, 95% are made in Austria, Germany, and Switzerland, and 5% are made in Liechtenstein.
6. Entity G operates in the finacial services industry in New Zealand.
Required
Determine the following.
a. The amount of U.S. taxable income for each entity A-G
b. The foreign tax credit allowed in the United States, first by basket and then in total.
c. The net U.S. tax liability.
d. Any excess foreign tax credits (identify by basket).
Explanation / Answer
a) Taxable Income
a =$61,250
$0.20 million received by parent = $200,000
= $22,250 + 39,000 =$61,250
$100,000 * 39/100 = 39,000
b)= $850,000
$2.0 million received by parent = $2,000,000
$113,900 + $736,100=$850,000
$2,500,000 - $335,000=$2,165,000 * 34/100
=$736,100
c)$340,000
=$1 million received by parent = $1,000,000
$113,900 + $226,100 =$340,000
$1,000,000 - $335,000 =$665,000 *34/100=$226,100
d)=$510,000
=$1.50 million received by parent = $1,500,000
$113,900 +$396,100=$510,000
$1,500,000 - $335,000 =$1,165,000 * 34/100=$396,100
f)$170,000
=$0.50 million received by parent = $500,000
$113,900 +$56,100 =$170,000
$500,000 - $335,000 =$165,000 * 34/100=$56,100
g) $340,000
$1 million received by parent =$1,000,000
$113,900 + $226,100 =$340,000
$1,000,000 -$335,000 = $665,000 * 34/100=$226,100
Explanation:
0 to $50,000 = 15%
$50,000 to $75000= $7,500 + 25% excess 50,000
$75,000 to $100,000 = $13,750 +34% excess $75,000
$100,000 to $335,000 = $22,250 + 39% excess $100,000
$335,000 to $10,000,000 = $113,900 + 34% excess $335,000
___________________________________________________________________
b) Tax credit can't excess by the tax imposed country tax rate
a)(US) 39% - 35% ( Argentina ) =4% tax credit
b) (US) 39%- (BraziL)34%=5% tax credit
c)(US) 39% - 36%(Canada)=3%tax credit
d) (US) 39% - 16.50%(Hong Kong )=22.50%tax credit
f)(US) 39%-33.06%(Japan)=5.94% (tax credit)
g)(US) 39%-28%(New Zealand )=11%(tax credit)
________________________________________________
c)
a$61,250 * 4/100=$2,450 - $61,250=$58,800
b)$850,000*5/100==$42,500 -$850,000=$807,500
c)$340,000 * 3/100==$10,200 -$340,000=$329,800
d)$510,000 *22.50/100=$114,750 - $510,000=$395,250
f)$170,000 * 5.94/100=$10,098
g)$340,000 * 11/100=$37,400
____________________________________________________________
D) There is excess foreign tax, all the countries low tax rate than usa, so 4% +5%+3%+22.50%+5.94%+11%
Total =51.44
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