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Exam 13: The Ustaxation of Multinational Transactions

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Question 41

Multiple Choice

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Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?

A) Interest income received from a loan to an unrelated party.
B) Dividend income from a five percent investment in an unrelated corporation.
C) Rent received from a passive investment in an apartment complex.
D) Gross profit from the manufacture and sale of inventory to an unrelated party.

E) C) and D)
F) B) and C)

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Question 42

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Under a U.S.treaty,what must a non-resident corporation create in the United States before it is subject to U.S.taxation on its business profits?

A) U.S. trade or business.
B) Permanent establishment.
C) The physical presence of at least one employee.
D) The physical presence of an asset such as a warehouse.

E) B) and C)
F) A) and C)

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Question 43

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Wooden Shoe Corporation is a 100 percent owned Dutch subsidiary of Tulip Corporation,a U.S.corporation.Wooden Shoe had post-1986 earnings and profits of €3,000,000 and post-1986 foreign taxes of $1,000,000.During the current year,Wooden Shoe paid a dividend of €300,000 to Tulip.Assume an exchange rate of €1 = $1.40.No withholding tax was imposed on the dividend.What amount of taxable income does the dividend generate on Tulip's U.S.tax return?

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.

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

Ames Corporation has a precredit U.S.tax of $340,000 on $1,000,000 of taxable income in 2017.Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the Australian government on this income.All of the foreign source income is treated as general category income for foreign tax credit purposes.Ames's foreign tax credit on its 2017 tax return will be:

Bismarck Corporation has a precredit U.S.tax of $340,000 on $1,000,000 of taxable income in 2017.Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income.Bismarck paid $80,000 of foreign income taxes on the general category income and $10,000 of foreign income taxes on the passive category income.What amount of foreign tax credit (FTC) can Bismarck use on its 2017 U.S.tax return and what is the amount of the carryforward,if any?

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

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 $3,000,000 of subpart F income.Which of the following statements is true about the application of subpart F to the income earned by Boomerang?

Emerald Corporation is a 100 percent owned Irish subsidiary of Shamrock,Inc.,a U.S.corporation.Emerald had post-1986 earnings and profits of €2,625,000 and post-1986 foreign taxes of $525,000.During the current year,Emerald paid a dividend of €525,000 to Shamrock.The dividend was characterized as general category income for FTC purposes.The dividend was subject to a withholding tax of €26,250.Assume an exchange rate of €1 = $1.50.Shamrock reported U.S.taxable income of $1,000,000.Shamrock's U.S.tax rate is 34 percent.Compute Shamrock's net U.S.tax liability for the current year and excess FTC,if any.

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

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada.Gross profit from the sale of the inventory was $300,000.Title to the inventory passed FOB: destination.Under the 50/50 method,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?

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2017?

Which statement best describes the U.S.framework for taxing multinational transactions?

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

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?

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.

What form is used by a U.S.corporation to "check-the-box" to elect the U.S.tax consequences of forming a hybrid entity outside the United States?

Under most U.S.treaties,a resident of the other country must have a permanent establishment in the United States before being subject to U.S.taxation on business profits earned within the United States.