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SS Exporters USA has $800,000 of before tax foreign income. The host country has

ID: 2708259 • Letter: S

Question



SS Exporters USA has $800,000 of before tax foreign income. The host country has a corporate income tax rate of 20% and the U.S. has a corporate income tax rate of 35%:


a) If the U.S. has no bilateral trade agreement with the host country, what is the total amount of income taxes SS Exporters will pay?


b) If the U.S. has a bilateral trade agreement with the host country that calls for the total tax paid to be equal to the maximum amount that could be paid in the highest taxing country, what is the total amount of income taxes SS Exporters will pay to the host country, and how much will they pay in U.S income taxes on the foreign earned income?


c) If the U.S. treated the taxes paid on income earned in the host country as a tax-deductible expense, then how much would SS's Exporters total U.S. corporate tax on the foreign earnings be?


d) If the U.S. treated the taxes paid on income earned in the host country as a tax-credit, then how much would SS Exporters total U.S. corporate tax on the foreign earnings be?

Explanation / Answer

a)

800000*35% = 280000


SS EXPORTERS will pay tax of $280000. As tax paid in the forign country will be allowed relief in the resident country as per income tax tax.


b) tax to be paid in forign country = $180000

tax paid to US income = nil as it has already paid tax


c) tax = $280000


d) tax = $280000