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Exam 25: Taxation of International Transactions

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Question 31

True/False

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The "residence of seller" rule is used in determining the sourcing of all gross income and deductions of a U.S.multinational business.

A) True
B) False

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Question 32

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With respect to income generated by non-U.S.persons, does the U.S.apply a "worldwide" or a "territorial" approach. Be specific.

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The answer is "both." U.S.persons are su...

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Question 33

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Which of the following determinations does not require knowing the amounts of one's U.S.- versus foreign-source income?

ForCo, a subsidiary of a U.S.corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany.The income from the sale of widgets is not Subpart F foreign base company sales income.

SunCo, a domestic corporation, owns a number of patents related to designing sunglasses.SunCo licenses these patents to unrelated parties.SpainCo, a Spanish corporation, paid SunCo $78,000 in royalties related to these licenses.SpainCo uses the patent information in its manufacturing process in its Texas plant.WiscCo, a domestic corporation, paid SunCo $32,000 in royalties related to the licenses.WiscCo uses the patent information in its manufacturing process in its Germany manufacturing plant.How much U.S.-source royalty income did SunCo earn from these licenses?

In 2013, George renounces his U.S.citizenship and moves to Fredonia, where income tax rates are very low. George is a multimillionaire and says he "has had it" with high Federal income taxes on wealthy individuals like himself. In 2016, George's U.S.-source income is $1.5 million. That income escapes Federal income taxes.

Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S.statutory law.

ForCo, a foreign corporation, purchases widgets from USCo, Inc., its U.S.parent corporation.The widgets are sold by ForCo to another unrelated foreign corporation in the same country as ForCo.The income from sale of the widgets by ForCo is not Subpart F foreign base company sales income.

Ridge, Inc., a domestic corporation, reports worldwide taxable income of $800,000, including a $300,000 dividend from Emma, Inc., a foreign corporation.Ridge's U.S.tax liability before FTC is $280,000.Ridge owns 20% of Emma.Emma's E & P after taxes is $8 million and it has paid foreign taxes of $4 million attributable to that E & P.If Ridge elects the FTC, its U.S.gross income with regard to the dividend from Emma is:

The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

Xenia, Inc., a U.S.shareholder, owns 100% of Fredonia, a CFC.Xenia receives a $3 million cash distribution from Fredonia.Fredonia's E & P is composed of the following amounts. Xenia recognizes a taxable dividend of:

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer.She spends 50 days in the United States and earns $15,000 for a two-month period.This amount is attributable to 40 U.S.working days and 10 foreign working days.Her employer does not have a U.S.trade or business and Liang spends no other time in the U.S.for the tax year.Liang's U.S.-source taxable income is:

Shannon, a foreign person with a green card, spends the following days in the United States. Shannon's residency status for 2014 is:

Your client holds foreign tax credit (FTC) carryforwards, i.e., it is in an "excess credit" position. Give at least three planning ideas that the client should implement, so as to free up the suspended FTCs.

Arendt, Inc., a domestic corporation, purchases a piece of equipment for use in its manufacture of custom pianos.The equipment is acquired in Ireland at a cost of 200,000 euros when 1 euro: $1.35.Payment is due in 90 days.Arendt acquires 200,000 euros and pays for the machine when 1 euro: $1.15.What is the basis of the asset to Arendt and what is the foreign currency exchange gain or loss, if any?

Which of the following is not a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

The U.S.system for taxing income earned outside its borders by U.S.persons is referred to as the territorial approach, because only income earned within the U.S.border is subject to taxation.

Abbott, Inc., a domestic corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly-owned foreign corporation.ForCo's undistributed E & P are $18 million and it has paid $12 million of foreign income taxes attributable to these earnings.What is Abbott's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

USCo, a domestic corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld.Its worldwide taxable income is $1,500,000 and its U.S.tax liability before the foreign tax credit is $525,000.What is USCo's allowed foreign tax credit?