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Exam 13: The Us Taxation of Multinational Transactions

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Question 31

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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$630,000 to Cruller. The dividend qualifies for the 100 percent dividends received deduction. The dividend was subject to a withholding tax of C$38,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. source taxable income of $2,400,000 before considering the dividend received from Horton Corporation. Compute the tax consequences to Cruller as a result of this dividend.

A) Taxable income of $3,030,000, net U.S. tax of $598,300, and FTC carryover of $0
B) Taxable income of $3,030,000, net U.S. tax of $636,300, and FTC carryover of $38,000
C) Taxable income of $2,400,000, net U.S. tax of $466,000, and FTC carryover of $0
D) Taxable income of $2,400,000, net U.S. tax of $504,000, and FTC carryover of $0

E) All of the above
F) A) and B)

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Question 32

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The United States generally taxes U.S. source fixed and determinable, annual or periodic income (FDAP) earned by non-U.S. persons by applying a withholding tax to the gross amount of income.

A) True
B) False

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Question 33

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Gouda, S.A., a Belgian corporation, received the following sources of income: $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?

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

Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in the current year. 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 foreign branch income. Reno paid Canadian income taxes of $450,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover. Assume an exchange rate of C$1 = $1.

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.

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

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

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 of compensation while working within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?

Amy is a U.S. citizen. During the year she earned income from an investment in a French company. Amy will be subject to U.S. taxation on her income under the principle of source-based taxation.

Which of the following tax benefits does not arise when a U.S. corporation forms a corporation in Ireland through which to earn business profits in Ireland?

Russell Starling, an Australian citizen and resident, received the following investment income during the current year: $5,000 of dividend income from ownership of stock in a U.S. corporation, $10,000 interest from a certificate of deposit in a U.S. bank, $3,000 of interest income earned from a loan to Clint Westwood, a U.S. citizen, and $2,000 capital gain from sale of a stock in a U.S. corporation. How much of Russell's income will be subject to U.S. taxation?

One of the tax advantages toan 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.

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S. shareholders in the year the subpart F income is earned.

Hanover Corporation, a U.S. corporation, incurred $315,000 of interest expense during the current year. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,500,000. The total tax book value of its foreign production assets is $5,250,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming the interest expense is fully deductible? (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

A non-U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

To be eligible for the "closer connection" exception to the physical presence test, an individual must be in the United States for less than how many days?

Saginaw Steel Corporation has a precredit U.S. tax of $105,000 on $500,000 of taxable income. Saginaw has $200,000 of foreign source taxable income and paid $60,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its tax return will be:

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

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during the current year. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value of its U.S. production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming the interest expense is fully deductible in the current year?