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Indeco, a U.S. C corporation, operates Grange, a sales branch in Staccato. Indeco’s U.S. corporate marginal...

Indeco, a U.S. C corporation, operates Grange, a sales branch in Staccato. Indeco’s U.S. corporate marginal tax rate is 35%; it is 20% for Staccato. Grange’s pre-tax profit for the year is $1,000,000. There is no income tax treaty between the United States and Staccato. Staccato’s currency is the U.S. dollar. Compute Indeco’s combined U.S. and foreign income tax on the Grange profits under each of the following assumptions. If an amount is zero, enter "0". If required, use the minus sign to indicate a "refund". U.S. Income Tax Staccato Income Tax Combined Tax Liability a. U.S. income tax law allows no deduction or credit for foreign income taxes paid. $ 350,000 $ 200,000 $ b. U.S. income tax law allows only a deduction for foreign income taxes paid. $ $ 200,000 $ c. U.S. income tax law allows only an exclusion of foreign branch profits. $ 0 $ 200,000 $ d. U.S. income tax law allows only a credit for the full amount of foreign income taxes paid. $ $ 200,000 $ e. U.S. income tax law allows only a credit for the full amount of foreign income taxes paid. The applicable Staccato tax rate is now 40%. $ $ 400,000 $ f. U.S. income tax law allows only a credit for the full amount of foreign income taxes paid, but limited currently to the corresponding tax on this income at U.S. rates. The applicable Staccato tax rate is now 40%.

Solutions

Expert Solution

a. US TAX = $ 10,00,000 × 35% = $ 3,50,000

    FOREIGN TAX = $ 10,00,000 × 20% = $ 2,00,000

b. US TAX = $ 10,00,000 × 35% - $ 2,00,000 = $ 3,50,000 - $ 2,00,000 = $ 1,50,000

    FOREIGN TAX =$ 10,00,000 × 20% = $ 2,00,000

c. US TAX = $ 0 × 35% = $ 0

   FOREIGN TAX = $ 10,00,000 × 20% = $ 2,00,000

d. US TAX = $ 10,00,000 × 35% - $ 2,00,000 = $ 3,50,000 - $ 2,00,000 = $ 1,50,000

    FOREIGN TAX =$ 10,00,000 × 20% = $ 2,00,000

e. US TAX = $ 10,00,000 × 35% - $ 4,00,000 = $ 3,50,000 - $ 4,00,000 = - $,50,000

    FOREIGN TAX =$ 10,00,000 × 40% = $ 4,00,000

f. US TAX = $ 10,00,000 × 35% - $ 3,50,000 = $ 3,50,000 - $ 3,50,000 = $ 0

   FOREIGN TAX =$ 10,00,000 × 40% = $ 4,00,000

ekkarill92 answered 2 years ago
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