Question

Santana Music is a​ U.S.-based MNC whose foreign subsidiary had pretax income of $58,000​; all​ after-tax income is available in the form of dividends to the parent company. The local tax rate is 41%​, he foreign dividend withholding tax rate is5.2%​, and the U.S. tax rate is 32%.

Compare the net funds available to the parent corporation ​(a) if foreign taxes cannot be applied as a credit against the U.S. tax liability and ​(b) if they can.

The dividend available to be declared is ___ (Round to the nearest​ dollar.)

The dividends that Santana will actually receive is ___ (Round to the nearest​ dollar.)

​(a)  If foreign taxes cannot be applied against the U.S. tax​ liability, the net funds available to Santana is __ ​(Round to the nearest​ dollar.)

​(b)  If foreign taxes can be applied against the U.S. tax​ liability, the net funds available to Santana is __ (Round to the nearest​ dollar.)

Answer 1

The dividend available to be declared is 34220

The dividends that Santana will actually receive is 32441

If foreign taxes cannot be applied against the U.S. tax​ liability, the net funds available to Santana - 22060

If foreign taxes can be applied against the U.S. tax​ liability, the net funds available to Santana is - 32441

Workings:

Pre tax income	58,000
Less: Local tax @41%	23780
Withholding income taxable	34,220
Withholding [email protected]%	1779
Net funds available if liability can be set off	32,441

Dividend income	32,441
Less: US Tax rate (32%)	10381
Net funds available if liability cannot be set off	22,060