Which country has the smaller total tax liability

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Sigma Corporation of Boston is contemplating establishing a wholly owned subsidiary operation in the Mediterranean. Two countries under consideration are Spain and Cyprus. Sigma intends to repatriate all after-tax foreign-source income to the United States. In the U.S., corporate income is taxed at 35 percent. In Cyprus, the marginal corporate tax rate is 10 percent. In Spain, corporate income is taxed at 30 percent. The withholding tax treaty rates with the U.S. on dividend income paid is 5 percent from Cyprus and 10 percent from Spain.

The financial manager of Sigma has asked you to help him determine where to locate the new subsidiary. The location decision of Cyprus or Spain will be based on which country has the smaller total tax liability.

Reference no: EM131114426

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