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Exam 24: The Us Taxation of Multinational Transactions

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Question 1

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

A) Partnership
B) Corporation
C) Hybrid entity treated as a branch for U.S. tax purposes
D) Hybrid entity treated as a partnership for U.S. tax purposes

E) None of the above
F) A) and C)

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Question 2

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Which of the following persons should not be treated as a "U.S. shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

A) A U.S. citizen owning 5 percent of the CFC.
B) A U.S. citizen owning 15 percent of the CFC.
C) A U.S. corporation owning 15 percent of the CFC.
D) All of the named persons are U.S. shareholders for subpart F purposes.

E) All of the above
F) C) and D)

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Question 3

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Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May 2020, Caterpillar relocated Janet to its operations in Spain for the remainder of 2020. Janet was paid a salary of $330,000. As part of her compensation package for moving to Spain, Janet received a housing allowance of $53,000. Janet's salary was earned ratably over the 12-month period. During 2020 Janet worked 280 days, 168 of which were in Spain and 112 of which were in the United States. How much of Janet's total compensation is treated as foreign source income for 2020?

Holmdel, Incorporated, a U.S. corporation, received the following sources of income: $10,000 interest income from a loan to its 100 percent owned Swiss subsidiary $50,000 dividend income from its 5 percent owned French subsidiary $100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States $25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey $50,000 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan. What amount of foreign source income does Holmdel have?

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?

Which of the following foreign taxes is not creditable for U.S. tax purposes?

Spartan Corporation, a U.S. company, manufactures widgets for sale in the United States and Europe. All manufacturing activities take place in the United States. During the current year, Spartan sold 100,000 widgets to European customers at a price of $5 each. Each widget costs $2 to produce. All of Spartan's production assets are located in the United States. Spartan ships its widgets FOB, place of destination. What amount of Spartan's gross profit is treated as coming from foreign sources?

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

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$600,000 to Cruller.The dividend qualifies for the 100percent dividends received deduction. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. source taxable income of $2,000,000 before considering the dividend received from Horton Corporation. Compute the tax consequences to Cruller as a result of this dividend.

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.

Manchester Corporation, a U.S. corporation, incurred $170,000 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 $24,000,000. The total tax book value of its foreign production assets is $6,000,000. 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?

Hanover Corporation, a U.S. corporation, incurred $354,000 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 $21,800,000. The total tax book value of its foreign production assets is $5,900,000. 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.)

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?

Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $4,800,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Boomerang?

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

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

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

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.

Boca Corporation, a U.S. corporation, received a dividend of $809,000 from its 100 percent owned Swiss subsidiary. The dividend is eligible for the 100 percent dividends received deduction. A 5 percent withholding tax ($49,000)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 companyhas $218,000 of U.S. source taxable income and the FTC limitation is not binding?

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.