Nico Mining, a U.S.-based MNC has a foreign subsidiary that earns $1,050,000 bef

Question

Nico Mining, a U.S.-based MNC has a foreign subsidiary that earns $1,050,000 before local taxes, with all the after tax funds to be available to the parent in the form of dividends. The foreign income tax rate is 30 percent, the foreign dividend withholding tax rate is 15 percent, and the firm's U.S. tax rate is 35 percent. 1. What are the funds available to the parent MNC if foreign taxes can be applied as a credit against the MNC's U.S. tax liability? 2. What are the funds available to the parent MNC if no tax credits are allowed?

Explanation / Answer

1. foreign tax = $1050,000*.30=315000 reaming income for dividend withholding tax= 1050,000-315000=$735000 dividend tax= $735000*.15=1,10250 reaming income = $624750 US tax rate= 35% income after all the taxes to parent MNC= $624750*.35=$406087.5 2. funds with parent company if no tax credit are allowed= $1050000-$1050000*.35=$682500

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