U.S. income tax treaties typically:
a. Provide for taxation exclusively by the country ofresidence.
b. Provide that the country with the highest tax rate will beallowed exclusive tax collection rights.
c. Provide for taxation exclusively by the source country.
d. Provide rules by which multinational taxpayers avoid doubletaxation.
U.S. income tax treaties typically:
| a. | Provide for taxation exclusively by the country ofresidence. | |
| b. | Provide that the country with the highest tax rate will beallowed exclusive tax collection rights. | |
| c. | Provide for taxation exclusively by the source country. | |
| d. | Provide rules by which multinational taxpayers avoid doubletaxation. |
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Related questions
1. California Cars is a U.S. manufacturer of electric cars.California Cars has $5 billion of U.S. taxable incomeâ$4 billion ofwhich is U.S.-source income and $1 billion of which isforeign-source income. California Cars faces a U.S. tax rate of 35%and paid foreign taxes of $280 million. The firmâs foreign sourceincome falls in the general basket. It is the first year ofCalifornia Carsâ foreign operations, so donât worry about foreigntax credit carryforwards or carrybacks.
a. What is California Carsâ foreign tax credit, and what is itsworldwide tax paid for the year?(please provide formulas)
CHECK FIGURE: $1,750
| Formula | Answer | |
| US tax before FTC= | ||
| FTC=min= | ||
| US tax after FTC= | ||
| Worldwide Tax |
b. Now suppose that California Cars engaged in tax-reductionstrategies abroad, reducing its foreign taxes to $200 million butholding all else constant. What is California Carsâ foreign taxcredit, and what is its worldwide tax paid for the year?
| Formula | Answer | |
| US tax before FTC | ||
| FTC=min= | ||
| US tax after FTC= | ||
| Worldwide tax= |
| Does This tax strategy affect the firms worldwide taxburden? | (Answer here) |
c. What possible benefit might California Cars receive fromreducing its foreign taxes paid in part b?
In particular, suppose that the foreign country in whichCalifornia Cars operates is likely to enact a dramatic increase inits tax rate next year.
