Which of the following statements regarding taxation of foreign operations is true?
|A)||The United States taxes foreign corporations on their worldwide income.|
|B)||The foreign tax credit can be used to eliminate double-taxation of foreign earnings.|
|C)||US corporations can claim a foreign tax credit for all types of foreign taxes paid.|
|D)||All of the above statements are true.|
This year Mike Inc., a foreign subsidiary, paid all of its after-tax income, $475,000, as a dividend to its parent, a U.S. corporation. Mike paid $142,500 of income taxes to the foreign country. The parent's U.S. tax rate is 34%. How much is the parent's allowable foreign tax credit?
Which of the following statements concerning the physical nexus necessary for a state to tax income is false?
|A)||Nebraska will have nexus on mail-order sales if the company has stores located in Nebraska malls.|
|B)||Company-owned trucks passing through Oregon to service customers in Washington create nexus in Oregon.|
|C)||A company has no nexus if its only activity within a state is the solicitation of sales of tangible products.|
|D)||A company will have nexus in California because its corporate headquarters is located in San Francisco.|
Which of the following statements concerning income tax treaties is false?
|A)||An income-tax treaty is a bilateral agreement between the governments of two countries defining and limiting each country’s respective tax jurisdiction.|
|B)||Under a typical treaty, a firm’s profits would be allocated to the countries in a manner similar to the apportionment of income among states under the UDITPA formula.|
|C)||Under a typical treaty, the nonresident country would tax a firm’s profits only if the firm maintained a permanent establishment in that country.|
|D)||The provisions of income-tax treaties pertain only to individuals and corporations that are residents of either country.|
Which of the following organizational forms is not commonly used by corporations for overseas operations?
|B)||Foreign S corporation|
|C)||Domestic corporate subsidiary|
|D)||Foreign corporate subsidiary|
Which of the following entities is not subject to U.S. federal income tax?
|A)||US corporation doing 100 percent of its business outside the United States|
|B)||Branch of US corporation operating entirely in Germany|
|C)||French subsidiary of US parent operating entirely in France|
|D)||Dutch corporation operating within the United States|
Which of the following statements regarding controlled foreign corporations is true?
|A)||Controlled foreign corporations are taxable by the United States on their worldwide income.|
|B)||US shareholders are taxable on any income earned by the controlled foreign corporation.|
|C)||US shareholders are never taxable on income earned by a controlled foreign corporation until the income is distributed to the shareholders.|
|D)||US shareholders of a controlled foreign corporation can increase their basis by the amount of any constructive distributions from the corporation.|
In determining the portion of a firm's total income subject to a state's income tax, most states use an apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).
Multi-state businesses can reduce their overall tax cost to the extent that they can shift income from a low-tax state to a high-tax state.
The foreign tax credit is available only for foreign income, excise, value-added, sales, property, and transfer taxes.