Posted: March 28th, 2021
U.S. International Corporation (USIC), a U.S. taxpayer, has investments in Foreign
Entities A–G. Relevant information for these entities for the current fi scal year
appears in the following table:
USIC United States — Manufacturing $10 35% — —
A Argentina 100% Manufacturing $ 1 35 0% $0.2
B Brazil 100 Manufacturing $ 2 34 0 $2.5*
C Canada 100 Manufacturing $ 3 26 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 38 5 $0.5
G New Zealand 60 Banking $ 4 28 5 $1.0
* Some dividends were paid out of beginning-of-year retained earnings.
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
fi nancial 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 fi nancial services industry in New Zealand.
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, fi rst by basket and then in
c. The net U.S. tax liability.
d. Any excess foreign tax credits (identify by basket).
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