Reference no: EM132960939

Question - Euroco is a foreign corporation that manufactures watches for sale worldwide. Euroco markets its watches in the United States through a branch sales office located in Boston. During Year 1, Euroco's effectively connected earnings and profits are $12 million, and its U.S. net equity is $24 million at the beginning of the year, and $16 million at the end of the year. In addition, Euroco's interest expense recorded and paid by the U.S. branch was $1,760,000 of portfolio interest paid to an unrelated foreign corporation and $800,000 of interest paid to a foreign corporation which owns 15% of the combined voting power of Euroco's stock. During Year 2, Euroco's effectively connected earnings and profits are $20 million, and its U.S. net equity at the end of the year is $18 million. In addition, Euroco's U.S. branch had recorded interest paid of $640,000 paid to a U.S. corporation. Euroco is not in a treaty country.

1. What is Euroco's Dividend Equivalent Amount at the end of Year 1?

a) $4 million b) $12 million c) $20 million d) $16 million

2. What is Euroco's branch profits tax, if any, for Year 1?

a) $6,000,000 b) $1,200,000 c) $3,600,000 d) $4,800,000

3. What is Euroco's branch interest withholding tax obligation, if any, for Year 1?

a) $768,000 b) $240,000 c) $528,000 d) 0

4. What is Euroco's Dividend Equivalent Amount at the end of Year 2?

a) $20 million b) $22 million c) $16 million d) $18 million

5. What is Euroco's branch profits tax, if any, for Year 2?

a) $6,000,000 b) $6,600,000 c) $5,400,000 d) $4,800,000

6. What is Euroco's branch interest withholding tax obligation, if any, for Year 2?

a) $64,000 b) $192,000 c) 0 d) $128,000