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Exam 24: The Us Taxation of Multinational Transactions

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Question 1

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

A) True
B) False

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Question 2

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Gouda, S.A., a Belgium corporation, received the following sources of income during 2014: $10,000 interest income from a loan to its 100 percent owned Dutch subsidiary $20,000 dividend income from its 100 percent owned U.S. subsidiary $30,000 royalty income from its Irish subsidiary for use of a trademark outside the United States $40,000 rent income from its Canadian subsidiary for use of a warehouse located in Wisconsin $5,000 capital gain from sale of stock in its 40 percent owned New Zealand joint venture. Title passed in New Zealand. What amount of U.S. source income does Gouda have in 2014?

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Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2014. Taxable income included $1,800,000 of foreign source taxable income from the company's branch operations in Canada. All of the branch income is general category income. Reno paid Canadian income taxes of $720,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2013. Use a U.S. corporate tax rate of 34%.

Ypsi Corporation has a precredit U.S. tax of $780,000 on $2,000,000 of taxable income in 2014. Ypsi has $400,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $180,000 of foreign income taxes on the general category income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its 2014 U.S. tax return and what is the amount of the FTC carryforward, if any?

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?

Rafael is a citizen of Spain and a resident of the United States. During 2014, 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 in 2014. $\begin{array} { | | c | l | } \hline{ \text { Income } } & \text { Source } \\\hline & \\\hline \text { Compensation } & \text { U.S. source } \\\hline \text { Dividend } & \text { U.S. source } \\\hline \text { Interest } & \text { Forcign source } \\\hline \text { Rent } & \text { U.S. source } \\\hline \text { Gain on the sale of stock } & \text { U.S. source } \\\hline\end{array}$

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

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2014. Included in the computation of taxable income was foreign source taxable income of $200,000, of which $87,500 was a dividend received from the corporation's 100 percent owned subsidiary in Ireland. The dividend brought with it a deemed paid credit of $12,500. In addition, a withholding tax of $4,375 was imposed on the dividend. Compute Boca Corporation's net U.S. tax liability for 2014. Assume a U.S. tax rate of 34 percent.

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?

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

All passive income earned by a CFC will be treated as foreign personal holding company income under subpart F for U.S. tax purposes. F.

Which statement best describes the U.S. framework for determining if an individual who is not a U.S. citizen will be treated as a resident alien for U.S. tax purposes?

A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

Which of the following statements best describes the operation of subpart F as it applies to income earned by a foreign corporation?

Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during 2014. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its U.S. production assets is $20,000,000 and $50,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $10,000,000, respectively. What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A deemed paid credit is available on which of the following dividends received by a U.S. corporation?

Alex, a U.S. citizen, became a resident of Belgium in 2013. Alex will no longer be subject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty.

Jesse Stone is a citizen and bona fide resident of Great Britain. During 2014, Jesse received the following income: Compensation of $10 million from performing concerts in the United States Cash dividends of $20,000 from a U.S. corporation Interest of $1,000 from a U.S. citizen who is a resident of Ireland Rent of $10,000 from British residents who rented Jesse's townhouse in Orlando, Florida Gain of $50,000 on the sale of stock in a U.S. corporation. Determine the source (U.S. or foreign) of each item of income Jesse received in 2014. $\begin{array} { | | c | l | } \hline{ \text { Income } } & \text { Source } \\\hline & \\\hline \text { Compensation } & \text { U.S. source } \\\hline \text { Dividend } & \text { U.S. source } \\\hline \text { Interest } & \text { Forcign source } \\\hline \text { Rent } & \text { U.S. source } \\\hline \text { Gain on the sale of stock } & \text { U.S. source } \\\hline\end{array}$

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.