Determine net u.s. tax liability on foreign source income

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Reference no: EM133506247

Question: Worldwide United Corporation, a U.S. taxpayer, manufactures and sells products through a network of foreign branches and foreign subsidiaries. Foreign subsidiaries are all controlled foreign corporations. Relevant information for these entities for the current fiscal year appears in the following table:

Entity	Country	Legal Form	Activity	Income Before Tax	Income Tax Rate	Dividend Withholding Tax Rate	Net Dividend Received by Parent
A	Bermuda	Corporation	Sales	$8,000,000	0%	0%	$8,000,000
B	Hong Kong	Corporation	Sales	$10,000,000	10%	0%	$9,000,000
C	Ireland	Corporation	Investment	$2,000,000	12.5%	0%	$1,750,000
D	Malaysia	Branch	Manufacturing	$10,000,000	24%	0%	$7,600,000

Additional information:

Entity A purchases finished goods from Entity D and sells them to other markets. 99% of A's income is from sales to foreign customers.
Entity B purchases finished goods from Entity D and sells them to other markets. 60% of B's income is from sales to foreign customers.
Entity C makes passive investments in stocks and bonds in European financial markets. All of C's income is derived from dividends and interest.
Entity D manufactures products that are sold in its home country as well as to related entities within the group.
The U.S. tax rate is 21%.

Required:

Determine the amount of U.S. taxable income for each entity.
Calculate the foreign tax credit allowed in the United States, by basket (branch income, general income and passive income) and in total.
Determine the net U.S. tax liability on foreign source income.

Reference no: EM133506247

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