Chapter 11 – International Taxation
23. Albemarle Company and Bostwick Company
Part 1 Part 2
Albemarle Bostwick
Foreign Country Country B Country A
Home Country Country A Country B
b. Net tax liability in home country 0 3,750
** Calculation of FTC allowed:
(a) Taxes deemed paid
(b) Overall FTC limitation
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Chapter 11 – International Taxation
24. Intec Company – foreign subsidiary
Exchange
Calculation of U.S. Taxable Income in US$ RMB Rate U.S.$
* (Dividend / 1 – Chinese tax rate) – Dividend
Calculation of FTC allowed in U.S. Tax Rate
Calculation of net U.S. tax liability
25. Intec Company – foreign branch
Exchange
Calculation of U.S. Taxable Income in US$ RMB Rate U.S.$
Calculation of FTC allowed in U.S. Tax Rate
Calculation of net U.S. tax liability
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Chapter 11 – International Taxation
26. Brown Corporation
Basic Facts Euros
Exchange rates
a. Brun SA is organized as a branch
Ex Rate Euros Dollars Dollars
Branch profits included in U.S. taxable
income
Loss on July 1 distribution
Gain on December 31 distribution
Determination of foreign tax credit
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Chapter 11 – International Taxation
26. (continued)
b. Brun SA is organized as a subsidiary
Brown Company includes in its U.S. taxable income — dividends received translated
at actual exchange rate at date of distribution plus taxes paid on those dividends (to
gross-up to a before tax basis)
Ex Rate Euros Dollars Dollars
July 1 Dividend
December 31 Dividend
Actual tax deemed paid on dividends
Proportion of net profit distributed as
dividends)
0
Determination of foreign tax credit
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Chapter 11 – International Taxation
27. C The U.S. government does not provide U.S. taxpayers with a dividend income exclusion.
28. Horace Gardner
29. Elizabeth Welch
* Calculation of FTC allowed
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Chapter 11 – International Taxation
Case 11-1 U.S. International Corporation
Note to instructors: The Income Tax Rates in this case for Canada, Japan, and New
Zealand (and the dividend withholding rate in New Zealand) are different from
what they were in the Third Edition of the book, due to actual changes in tax rates
in those countries that took place in 2011.
Determination of Which Countries are Tax Havens
Dividend
Income Withholding Tax
Entity Country Tax Rate Tax Rate Effective Tax Rate on Dividends Haven*
A Argentina 35% 0% 35% + (65% x 0%) = 35% No
Determination of U.S. Taxable Income, Actual Tax Paid, and FTC Basket for Each Entity
A: Argentina – branch
B: Brazil – subsidiary; not a tax haven
C: Canada – subsidiary; tax haven; no subpart F income
D: Hong Kong – subsidiary; tax haven; subpart F income–passive income
Passive Income Basket
E: Liechtenstein – subsidiary; tax haven; subpart F income–foreign base company sales
income
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Chapter 11 – International Taxation
Case 11-1 U.S. International Corporation (continued)
F: Japan – subsidiary; not a tax haven
G: New Zealand – subsidiary; not a tax haven
Calculation of Foreign Tax Credit
Passive General
Income Income
Basket Basket Total
Calculation of Net U.S. Tax Liability
Foreign Source Income
U.S. Passive General
Source Income Income
U.S. Tax Return Income Basket Basket Total
Excess Foreign Tax Credits
There are no excess foreign tax credits in the current year
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