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Exam 24: The Us Taxation of Multinational Transactions

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Question 51

Multiple Choice

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Guido was physically present in the United States for 150 days in 2016, 120 days in 2015, and 90 days in 2014. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2016?

A) 360
B) 205
C) 190
D) 150

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

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Question 52

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Camellia Corporation, a U.S. corporation, incurred $600,000 of research and experimental (R&E) expenses during 2016. Camellia sells inventory within the United States and abroad. Camellia conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $20,000,000, of which $12,000,000 was from foreign source sales. Gross profit from sale of the inventory was $8,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A) $360,000
B) $180,000
C) $150,000
D) $112,500

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

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Question 53

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Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2016, General Motors relocated Jimmy to its operations in Germany for the remainder of 2016. Jimmy was paid a salary of $250,000. As part of his compensation package for moving to Germany, Jimmy received a cost of living allowance of $30,000, which was paid to him only while he worked in Germany. Jimmy's salary was earned ratably over the twelve month period. During 2016 Jimmy worked 260 days, 130 of which were in Germany and 130 of which were in the United States. How much of Jimmy's total compensation is treated as foreign source income for 2016?

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2016: $10,000 interest income from a loan to its 100 percent owned Swiss subsidiary $50,000 dividend income from its 100 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 in 2016?

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S. persons outside the United States.

Ypsi Corporation has a precredit U.S. tax of $780,000 on $2,000,000 of taxable income in 2016. Ypsi has $400,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $180,000 of foreign income taxes on the general category income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its 2016 U.S. tax return and what is the amount of the FTC carryforward, if any?

Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during 2016. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its production assets is $20,000,000 and $60,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $20,000,000, respectively. What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

Portsmouth Corporation, a British corporation, is a wholly owned subsidiary of Salem Corporation, a U.S. corporation. During the year, Portsmouth reported the following income: $250,000 interest income received from a loan to an unrelated French corporation $100,000 dividend income received from a less than 1 percent owned unrelated Dutch corporation $150,000 rent income from an unrelated British corporation on property Portsmouth actively manages $500,000 gross profit from the sale of inventory manufactured by Portsmouth in Great Britain and sold to a 100 percent owned subsidiary in Germany What amount of subpart F income does Portsmouth recognize in the current year?

Which of the following statements best describes how the deemed paid credit is computed by a U.S. corporation?

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.

Knoxville Corporation, a U.S. corporation, incurred $300,000 of research and experimental (R&E) expenses during 2016. Knoxville sells inventory within the United States and abroad. Knoxville conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $10,000,000, of which $3,000,000 was from foreign source sales. Gross profit from sale of the inventory was $5,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

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?

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.

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

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.

Sushi Corporation is a 100 percent owned Japanese subsidiary of Squid, Inc., a U.S. corporation. Sushi had post-1986 earnings and profits of ¥120,000,000 and post-1986 foreign taxes of $800,000. During the current year, Sushi paid a dividend of ¥60,000,000 to Squid. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a 0 percent withholding tax. Assume an exchange rate of ¥1 = $0.010. Squid reported U.S. taxable income of $2,000,000. Squid's U.S. tax rate is 34 percent. Compute Squid's net U.S. tax liability for the current year and excess FTC, if any.

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

Boca Corporation, a U.S. corporation, received a dividend of $800,000 from its 100 percent owned Swiss subsidiary. A deemed paid credit of $200,000 was available on the dividend. A five percent withholding tax ($40,000) 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 company broke even on its other operations and the FTC limitation is not binding? Use a U.S. tax rate of 34 percent.

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?