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Exam 13: The Us Taxation of Multinational Transactions

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Question 21

True/False

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All taxes paid to a foreign government by a U.S. individual are creditable on the individual's U.S. tax return.

A) True
B) False

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Question 22

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Under the book value method of allocating and apportioning interest expense for FTC purposes, assets are characterized as being either U.S. or non-U.S. based on their geographic location.

A) True
B) False

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Question 23

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Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend qualifies for the 100 percent dividends received deduction. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. source taxable income of $2,000,000 before considering the dividend received from Horton Corporation. Compute the tax consequences to Cruller as a result of this dividend.

"Outbound taxation" deals with the U.S. tax rules that apply to U.S. persons doing business outside the United States.

Which tax rule applies to an excess foreign tax credit (FTC) that arises in 2019?

Rafael is a citizen of Spain and a resident of the United States. During the current year, Rafael received the following income: Compensation of $5 million from competing in tennis matches in the U.S. Cash dividends of $10,000 from a Spanish corporation that earns 50 percent of its income from sales in the United States Interest of $2,000 from a Spanish citizen who is a resident of the U.S. Rent of $5,000 from U.S. residents who rented his villa in Italy Gain of $10,000 on the sale of stock in a German corporation Determine the source (U.S. or foreign) of each item of income Rafael received.

Nicole is a citizen and resident of Australia. She has a full-time job in Australia and has lived there with her family for the past 10 years. In 2017, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2018 and stayed for 150 days. In 2019 she came back to the United States on business and stayed for 100 days. Does Nicole meet the U.S. statutory definition of a resident alien in 2019 under the substantial presence test?

Obispo, Inc., a U.S. corporation, received the following sources of income: $20,000 interest income from a loan to its 100 percent owned U.S. subsidiary. $30,000 dividend income from its 5 percent owned Canadian subsidiary. $50,000 royalty income from its Irish subsidiary for use of a trademark within the United States. $40,000 rent income from its Dutch subsidiary for use of a warehouse located in Belgium. $3,000 capital gain from sale of stock in its 40 percent owned Mexican joint venture. Title passed in the United States. What amount of foreign source income does Obispo have?

Under most U.S. treaties, a resident of the other country must have a permanent establishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

A U.S. corporation reports its foreign tax credit computation on which tax form?

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

A hybrid entity established in Ireland is treated as a flow-through entity for U.S. tax purposes and a corporation for Irish tax purposes.

All income earned by a Swiss corporation owned by a U.S. corporation is deferred from U.S. taxation until such income is remitted back to the United States.

Vintner, S.A., a French corporation, received the following sources of income: $20,000 interest income from a loan to its 100 percent owned U.S. subsidiary $30,000 dividend income from its 5 percent owned Canadian subsidiary $100,000 royalty income from its Irish subsidiary for use of a trademark within the United States $100,000 rent income from its Mexican subsidiary for use of a warehouse located in Arizona $50,000 capital gain from sale of stock in its 40 percent owned German joint venture. Title passed in the United States. What amount of U.S. source income does Vintner have?

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

Philippe is a French citizen. During 2019 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2019, he will not under any circumstances be treated as a resident alien for U.S. tax purposes.

Which of the following items of foreign source income is classified as passive category income for foreign tax credit purposes?

One of the tax advantages to an individual using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

A rectangle with an inverted triangle within it is a symbol used to represent what organizational form?

Bismarck Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in the current year. Bismarck has $200,000 of foreign source taxable income characterized as foreign branch income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the foreign branch income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its current-year U.S. tax return and what is the amount of the carryforward, if any?