Question

Trident Solar Technologies (TST) is the wholly-owned Taiwanese subsidiary of United Renewable Energy (URE) Inc., a U.S. firm.

Last year, TST had $2,000,000 of taxable income and paid 50% of the after-tax income to URE in dividends. The corporate tax rate in Taiwan was 25%, and the and the foreign withholding tax rate on dividends was 10%. The corporate tax rate for the parent company in the U.S. was 30%.

Calculate tax liability and excess foreign tax credit for URE, the U.S. parent company.

		The U.S. tax liability for URE was $0 and the excess foreign credit for URE was $40,000
		The U.S. tax liability for URE was $0 and the excess foreign credit for URE was $30,000
		The U.S. tax liability for URE was $60,000 and the excess foreign credit for URE was $0
		The U.S. tax liability for URE was $0 and the excess foreign credit for URE was $25,000
		The U.S. tax liability for URE was $0 and the excess foreign credit for URE was $35,000

Answer 1

Any dividend received from a specified foreign corporation is subject to 100% Dividend received deduction. Thus the US comapny URE would not have any tax laibility in US.

Amount to tax withheld would be = $2,000,000 * 50% * 25% * 10% = $25,000

Thus the answer would be:

The U.S. tax liability for URE was $0 and the excess foreign credit for URE was $25,000

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