Question: U.S. International Corporation
U.S. International Corporation (USIC), a U.S. taxpayer, has investments in Foreign Entities A-G. Relevant information for these entities for the current fiscal year appears in the following table:
|
Entity
|
County
|
Percent
Owned
|
Activity
|
Income
before Tax
($ millions)
|
Income
Tax Rate
|
Dividend
Withholding
Tax Rate
|
Net Amount Received by Parent ($ millions)
|
|
USIC
|
United States
|
-
|
Manufacturing
|
$10
|
35%
|
-
|
-
|
|
A
|
Argentina
|
100%
|
Manufacturing
|
$ I
|
35
|
0%
|
$0.2
|
|
B
|
Brazil
|
100
|
Manufacturing
|
$ 2
|
34
|
0
|
$2.5*
|
|
C
|
Canada
|
100
|
Manufacturing
|
$ 3
|
33
|
5
|
$1.0
|
|
D
|
Hong Kong
|
100
|
Investment
|
$ 2
|
16.5
|
0
|
$1.5
|
|
E
|
Liechtenstein
|
100
|
Distribution
|
$ 3
|
10
|
4
|
$0.0
|
|
F
|
Japan
|
51
|
Manufacturing
|
$ 2
|
40
|
5
|
$0.5
|
|
G
|
New Zealand
|
60
|
Banking
|
$ 4
|
30
|
15
|
$1.0
|
Additional Information
1. USIC's $10 million income before tax is derived from the production and sale of products in the United States.
2. Each entity is legally incorporated in its host country other than Entity A, which is registered with the Argentinian government as a branch.
3. Entities A, B, C, and F produce and market products in their home countries.
4. Entity D makes passive investments in stocks and bonds in the Hong Kong financial markets. Income is derived solely from dividends and interest.
5. Entity E markets goods purchased from (manufactured by) USIC. Of E's sales, 95 percent are made in Austria, Germany, and Switzerland, and 5 percent are made in Liechtenstein.
6. Entity G operates in the financial services industry in New Zealand. Required Determine the following:
a. The amount of U.S. taxable income for each Entity A-G.
b. The foreign tax credit allowed in the United States, first by basket and then in total.
c. The net U.S. tax liability.
d. Any excess foreign tax credits (identify by basket).