Question

HomeShop has a branch/local office in Japan. HomeShop sells 30000 units to customers in Bulgaria and 100000 units to customers in Japan. Profit per unit is € 89 (Ignore all other costs). All profits are repatriated from Japan. The corporate tax rate in Bulgaria is 40% and 32% in Japan.

1. With no Tax relief agreement in Japan, what are the total taxes that HomeShop has to pay in both countries?

2. Now assume that there is a possibility to use foreign tax credit (FTC) in Bulgaria. What will be the total taxes HomeShop has to pay in this scenario in both countries?

Answer 1

Question
1
		Bulgaria
		Units Sold	30,000
		ProfitPer Unit	89
		Net Profit	26,70,000
		Tax Rate	40%
		Tax in Bulgaria	10,68,000
		Japan
	A	Units Sold	1,00,000
		ProfitPer Unit	89
		Net Profit	89,00,000
		Tax Rate	32%
		Tax in Japan	28,48,000
	B	Profit from Bulgaria	26,70,000
		Tax Rate	32%
		Tax in Japan	8,54,400
	A+B	Total Tax paid in Japan	37,02,400
Question
2		Bulgaria
		Units Sold	30,000
		ProfitPer Unit	89
		Net Profit	26,70,000
		Tax Rate	40%
		Tax in Bulgaria	10,68,000
		Japan
		Total Tax paid in Japan	37,02,400
		As per Question 1
	Less:	Tax Paid in Bulgaria	10,68,000
		(Foreign Tax credit)
		Tax Payable in Japan	26,34,400