A U.S.-based MNC has three subsidiaries: S1 (40 percent owned by the MNC); S2 (33 percent owned by S1), and S3 (20 percent owned by S2). The taxable income for each firm is $100 million. The local taxes for each firm are $15 million, $20 million, and $10 million, respectively. The MNC's tax rate is 40 percent. A.) Can the MNC apply all of its local taxes as a credit against its U.S. taxes? If not, which subsidiaries can it use to get a credit against its U.S. taxes. Explain your rationale briefly. B.) Based on the "grossing up" concept, calculate all tax credits applicable to the MNC.
A U.S.-based MNC has three subsidiaries: S1 (40 percent owned by the MNC); S2 (33 percent owned by S1), and S3 (20 percent owned by S2). The taxable income for each firm is $100 million. The local taxes for each firm are $15 million, $20 million, and $10 million, respectively. The MNC's tax rate is 40 percent. A.) Can the MNC apply all of its local taxes as a credit against its U.S. taxes? If not, which subsidiaries can it use to get a credit against its U.S. taxes. Explain your rationale briefly. B.) Based on the "grossing up" concept, calculate all tax credits applicable to the MNC.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter16: Multijurisdictional Taxation
Section: Chapter Questions
Problem 15P
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A U.S.-based MNC has three subsidiaries: S1 (40 percent owned by the MNC); S2 (33 percent owned by S1), and S3 (20 percent owned by S2). The taxable income for each firm is $100 million. The local taxes for each firm are $15 million, $20 million, and $10 million, respectively. The MNC's tax rate is 40 percent.
A.) Can the MNC apply all of its local taxes as a credit against its U.S. taxes? If not, which subsidiaries can it use to get a credit against its U.S. taxes. Explain your rationale briefly.
B.) Based on the "grossing up" concept, calculate all tax credits applicable to the MNC.
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