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Exam 24: The Ustaxation of Multinational Transactions

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Question 1

Multiple Choice

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Which statement best describes the U.S.framework for taxing non-U.S.persons on income earned from U.S.sources?

A) Income that is characterized as effectively connected income is subject to net taxation while income that is characterized as fixed and determinable,annual or periodic income is subject to a withholding tax applied to gross income.
B) Income that is characterized as effectively connected income is subject to a withholding tax applied to gross income while income that is characterized as fixed and determinable,annual or periodic income is subject to net taxation.
C) All U.S.source income is subject to net taxation,regardless of whether it is characterized as effectively connected or as fixed and determinable,annual or periodic income.
D) All U.S.source income is subject to a withholding tax applied to gross income,regardless of whether it is characterized as effectively connected or as fixed and determinable,annual or periodic income.

E) A) and D)
F) A) and C)

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A

Question 2

True/False

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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) True
B) False

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Question 3

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Boca Corporation,a U.S.corporation,received a dividend of $800,000 from its 100 percent owned Swiss subsidiary.The dividend is eligible for the 100 percent dividends received deduction.A 5 percent withholding tax ($40,000)was imposed on the dividend.What amount of taxable income does the dividend generate on Boca's U.S.tax return and what is the company's net U.S.tax,assuming the company has $200,000 of U.S.source taxable income and the FTC limitation is not binding?

The gross profit from a sale of inventory manufactured in the United States and sold by a U.S.retailer to a customer in Spain will always be treated as 100 percent U.S.source income.

Which of the following transactions engaged in by a Swiss controlled foreign corporation creates foreign base company sales income?

Before subpart F applies,a foreign corporation must be a CFC for how many consecutive days?

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico.Gross profit from the sale of the inventory was $200,000.Title to the inventory passed FOB: shipping point.How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

A U.S.corporation can use hybrid entities to avoid the application of subpart F to cross-border payments made between wholly owned entities outside the United States.

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S.individual.The withholding tax will be creditable on the individual's U.S.tax return as an "in lieu of" tax.

Windmill Corporation,a Dutch corporation,is owned by the following unrelated persons: 50 percent by a U.S.corporation,5 percent by a U.S.individual,and 45 percent by a Swiss corporation.During the year,Windmill earned $2,000,000 of subpart F income.Which of the following statements is true about the application of subpart F to the income earned by Windmill?

U.S.corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100 percent owned foreign corporations,even if the dividend qualifies for the 100 percent dividends received deduction.

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

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

Guido was physically present in the United States for 150 days in 2019,120 days in 2018,and 90 days in 2017.Under the substantial presence test formula,how many days is Guido deemed physically present in the United States in 2019?

Deductible interest expense incurred by a U.S.corporation will always be treated as a U.S.source deduction.

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

Appleton Corporation,a U.S.corporation,reported total taxable income of $10,000,000 in the current year.Taxable income included $2,500,000 of foreign source taxable income from the company's branch operations in the United Kingdom.All of the branch income is foreign branch income.Appleton paid U.K.income taxes of $500,000 on its branch income.Compute Appleton's net U.S.tax liability and any foreign tax credit carryover.

Jimmy Johnson,a U.S.citizen,is employed by General Motors Corporation,a U.S.corporation.In June 2019,General Motors relocated Jimmy to its operations in Germany for the remainder of 2019.Jimmy was paid a salary of $250,000.As part of his compensation package for moving to Germany,Jimmy received a cost of living allowance of $30,000,which was paid to him only while he worked in Germany.Jimmy's salary was earned ratably over the 12-month period.During 2019 Jimmy worked 260 days,130 of which were in Germany and 130 of which were in the United States.How much of Jimmy's total compensation is treated as foreign source income for 2019?

Which of the following incomes earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?

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