Question

4. Foreign tax credit or FTC Scheme

You are an assistant to the CFO at Home Depot. She wants you to provide very short responses for following questions:

1. If the tax rate in Canada is greater than in the US, what is the tax treatment under the FTC scheme for bringing cashflows from Canada?
2. If the tax rate in Mexico is less than the tax rate in the US, what is the tax treatment under the FTC scheme for bringing cashflows from Mexico into the US?

Answer 1

Answer:
From the data available:
(a) When the tax credit in Canada is smaller than those in the United States, the home depot would also owe something to the IRS.
The US tax on income would be restricted to the disparity between the US and Canada tax rates.

(b) When the tax credit in Mexico is greater than those in the United States, the home depot would have a smaller tax burden in the United States.
Double taxation is prevented and there'll be an excess of the unused foreign tax credit for the home depot.


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