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%.

What were the total taxes paid by TST, the Taiwanese subsidiary to the Taiwan government?

		$590,000
		$660,000
		$620,000
		$575,000
		$120,000

Answer 1

We can calculate the desired result as follows

Taxable Income of TST = $ 2,000,000

Corporate tax rate = 25%

Tax paid to Taiwan government on Income = Taxable Income of TST * Tax rate

= 2,000,000 * 25%

= $ 500,000

Net Income = Total Income - Tax paid

= 2,000,000 - 500,000

= $ 1,500,000

Dividend paid to URE = 50% of Net Income

= 0.5 * 1,500,000

= $ 750,000

Foreign withholding tax rate = 10%

Tax paid to Taiwan government on Dividend paid to URE = Total Dividend * Foreign withholding tax rate

= 750,000 * 10%

= $ 75,000

Total taxes paid to Taiwan government = Tax paid on Income + Tax paid Dividend paid to URE

= 500,000 + 75,000

= $ 575,000

So, the correct answer is option (d)

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