Question

inbound taxation

Multiple Choice Questions

1. Which one of the following is NOT true with regard to the U.S. taxation of international income (assume no income tax treaty applies)?

1. If a foreign person carries on a trade or business in the United States, U.S. tax is generally imposed on all taxable income that is effectively connected with the trade or business.
2. If a foreign person earns dividends from sources within the United States, U.S. tax is generally imposed at a flat 30% tax rate.
3. Taxable income of a foreign person that is effectively connected with a U.S. trade or business is generally computed on a gross basis without any deductions.
4. The income tax imposed on a foreign person that earns dividends from sources within the United States is generally withheld by the payor of the dividend.
5. If a foreign person earns interest income on bank deposits, such interest is generally exempt from withholding.

2. Which one of the following is true with regard to general U.S. taxation.

1. A United States Person is defined as a citizen or resident of the United States as well as U.S. territories.
2. Interest income is NOT generally sourced with respect to the jurisdiction of incorporation of the corporation paying the interest.
3. Per se entities are allowed to make U.S. “check-the-box” elections.
4. A foreign beneficial owner is subject to U.S. withholding tax on U.S. source fixed or determinable, annual or periodical or FDAP income.
5. Royalty income is sourced based on the jurisdiction of the corporation receiving the royalties.

Answer 1

Answer:

1. The false statement is (C)

Reason:

It is given that the 'taxable income of a foreign person that is effectively connected with a US trade or business is generally computed on a gross basis without any deductions'. But the correct statement is the taxable income of a foreign person NOT EFFECTIVELY CONNECTED with US trade or business is generally computed on gross basis without any deductions.

2. The true statement is (D)

'A foreign beneficial owner is subject to US withholding tax on US source fixed or determinable annual or periodical or FDAP income' is the true statement.