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Exam 9: Taxation of International Transactions

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Question 1

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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.

A) True
B) False

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verified

True

Question 2

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Carol, a citizen and resident of Adagio, reports gross income that is effectively connected with a U.S. business. No deductions are allowed against this income, and Carol's U.S. tax rate is a flat 30%.

A) True
B) False

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False

Question 3

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An appropriate transfer price is one that considers the risks, assets, and functions of the persons to whom income is assigned.

Wellington, Inc., a U.S. corporation, owns 30% of a CFC that has $50 million of earnings and profits for the current year. Included in that amount is $20 million of Subpart F income. Wellington has been a CFC for the entire year and makes no distributions in the current year. Wellington must include in gross income:

A "U.S. shareholder" for purposes of CFC classification is any U.S. person who owns directly, indirectly, and constructively at least 50% of the voting power of a foreign corporation.

Dividends received from Murdock Corp., a corporation organized in Sustenato that earns 70% of its income from U.S. business activities, are 70% U.S.-source income.

Inbound and offshore asset transfers by a U.S. business can be subject to immediate Federal income taxation under § 367.

ForCo, a foreign corporation not engaged in a U.S. trade or business, recognizes a $3 million gain from the sale of land located in the United States. The amount realized on the sale was $50 million. Absent any exceptions, what is the required withholding amount on the part of the purchaser of this land?

USCo, a U.S. corporation, purchases inventory from distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. Profit on the sale is $10,000. What is the sourcing of the USCo's inventory sales income?

Peanut, Inc., a U.S. corporation, receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld. Peanut's worldwide taxable income is $900,000, and its U.S. Federal income tax liability before FTC is $189,000. What is Peanut's foreign tax credit?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Upon repatriation to a CFC, it does not create dividend income.

Given the following information, determine whether FanCo, a foreign corporation, is a CFC. $\begin{array}{l}\begin{array} { l c l } \text { Shareholders of } & \text { Voting } & \\\text { Foreign Corporation } & \text { Power } & \text { Classification } \\\text { Murray } & 24 \% & \text { U.S. person } \\\text { Nancy } & 20 \% & \text { U.S. person } \\\text { Otto } & 40 \% & \text { Foreign person } \\\text { Patricia } & 16 \% & \text { U.S. person }\end{array}\\\text { Patricia is Murray's daughter. }\end{array}$

In working with the foreign tax credit, a U.S. corporation may be able to alleviate the problem of excess foreign taxes by:

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

U.S. income tax treaties:

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

Match the definition with the correct term. -U.S. taxpayers earning income outside the United States.

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

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

Describe and diagram the timeline that most businesses use to enter the international markets.