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Spartan Corporation, a U.S. corporation, reported $5.4 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income at 25 percent, and the United States taxes corporate income at 35 percent. (Enter your answers in dollars and not in millions of dollars.)

a. If the United States provided no mechanism for mitigating double taxation, what would be the total tax (U.S. and foreign) on the $5.4 million of branch profits?

b. Assume the United States allows U.S. corporations to exclude foreign source income from U.S. taxation. What would be the total tax on the $5.4 million of branch profits?

c. Assume the United States allows U.S. corporations to claim a deduction for foreign income taxes. What would be the total tax on the $5.4 million of branch profits?

d-1. Assume the United States allows U.S. corporations to claim a credit for foreign income taxes paid on foreign source income. What would be the total tax on the $5.4 million of branch profits?

d-2. Assume the United States allows U.S. corporations to claim a refundable credit for foreign income taxes paid on foreign source income. What would be your answer if Spartania taxed branch profits at 40 percent?

What is the total tax for a-d2?

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Bunny Greenfelder
Bunny GreenfelderLv2
30 Sep 2019

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Waco Leather Inc., a U.S. corporation, reported total taxableincome of $5.1 million. Taxable income included $2 million offoreign source taxable income from the company’s branch operationsin Mexico. All of the branch income is general category income.Waco paid Mexican income taxes of $500,000 on its branchincome.

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U.S. source income from domestic branch $ 5,170,000

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During the year, Dixie paid $217,000 income tax to Mexico and $335,000 income tax to Canada. It paid no direct income taxes to any other foreign country. However, Dix-Col paid a 20 percent income tax to the country of Colombia, and Dix-Per paid a 37 percent income tax to the country of Peru. U.S. tax rate is 34 percent.

a. Compute Dixie’s taxable income. (Round your intermediate calculations to the nearest whole dollar.)

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