Cholati is a foreign corporation that produces fine chocolates for sale worldwid

Question

Cholati is a foreign corporation that produces fine chocolates for sale worldwide. Cholati markets it chocolates in the United States through a branch sales office located in New York City. During the current year, Cholati%u2019s effectively connected earnings and profits are $3 million, and its U.S. net equity is $6 million at the beginning of the year, and $4 million at the end of the year. In addition, a review of Cholati%u2019s interest expense account indicates that it paid $440,000 of portfolio interest to an unrelated foreign corporation, $200,000 of interest to a foreign corporation which owns 15% of the combined voting power of Cholati%u2019s stock, and $160,000 of interest to a domestic corporation.

Compute Cholati%u2019s branch profi ts tax, and determine its branch interest withholding tax obligations. Assume that Cholati does not reside in a treaty country.

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