Question 1

The income earned by a foreign branch operation of a U.S.corporation is taxable by the United States only when repatriated.

Accepted Answer

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States even when it is not repatriated. The U.S. corporation is required to report and pay taxes on its worldwide income, including income earned by its foreign branches. However, the U.S. corporation may be able to claim foreign tax credits for taxes paid to foreign countries on the same income.

Question 2

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

Accepted Answer

The answer of Cross-crediting allows multinational corporations to use excess...

Question 3

In determining the portion of a firm's total income subject to a state's income tax,most states use an apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

Accepted Answer

Most states indeed use an apportionment formula based on UDITPA to determine the portion of a firm's total income that is taxable within their jurisdiction. However, some states may have modifications or deviations from the model act.

Question 4

Under the U.S.tax system,a domestic corporation pays U.S.tax only on the portion of its business income earned in the United States.

Accepted Answer

Under the U.S. tax system, a domestic corporation is generally taxed on worldwide income, including income earned outside the United States. However, certain types of foreign income may qualify for exceptions or deductions under the tax code.

Question 5

The United States taxes its citizens on their worldwide incomes.

Accepted Answer

The United States taxes its citizens on their worldwide incomes, regardless of where they are living or working. There are certain exemptions and deductions available, but the fundamental principle is that all income earned by U.S. citizens is subject to taxation by the U.S. government.

Question 6

Sales to foreign customers through a branch office of a U.S.corporation are considered foreign-derived intangible income eligible for a preferential tax rate.

Accepted Answer

Sales to foreign customers through a branch office of a U.S. corporation do not qualify as foreign-derived intangible income (FDII) because FDII benefits are designed to apply to income derived from serving foreign markets directly from the U.S., rather than through a foreign branch or subsidiary.

Question 7

For dividends received prior to 2018,the deemed paid foreign tax credit was available only to U.S.corporations that own 30% or more of the voting stock of a foreign corporation that paid dividends during the taxable year.

Accepted Answer

The deemed paid foreign tax credit was available to U.S. corporations that owned at least 10% of the voting stock of a foreign corporation, not the 30% threshold mentioned. This credit allowed U.S. corporations to claim a credit for a portion of the taxes paid by the foreign corporation on the income out of which dividends were paid.

Question 8

The foreign tax credit is available for income taxes paid to a foreign country.

Accepted Answer

The foreign tax credit is a tax credit that allows taxpayers to offset the amount of income taxes paid to a foreign government against their U.S. tax liability. This credit is available for income taxes paid to a foreign country.

Question 9

Under most tax treaties,income attributable to a permanent establishment through which a foreign taxpayer conducts business can be taxed only by the taxpayer's country of residence.

Accepted Answer

Under most tax treaties, income attributable to a permanent establishment through which a foreign taxpayer conducts business can be taxed by the country in which the permanent establishment is located, not just by the taxpayer's country of residence.

Question 10

The foreign tax credit is available only for foreign income,excise,value-added,sales,property and transfer taxes.

Accepted Answer

The foreign tax credit is generally available for income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or U.S. possession, but not for other types of taxes such as excise, value-added, sales, property, or transfer taxes.

Question 11

The foreign subsidiaries of a U.S.corporation cannot be included in a U.S.consolidated tax return.

Accepted Answer

Foreign subsidiaries are usually subject to the tax laws of the countries in which they operate, and therefore cannot be included in a U.S. consolidated tax return. However, the U.S. parent company may be required to report and pay taxes on certain income earned by its foreign subsidiaries under the Controlled Foreign Corporation (CFC) rules.

Question 12

For dividends received prior to 2018,the deemed paid foreign tax credit treats a U.S.corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

Accepted Answer

Prior to 2018, the deemed paid foreign tax credit rules treated a U.S. corporation as if it had paid tax directly to a foreign jurisdiction when it received a foreign source dividend. This allowed the corporation to claim a credit for the foreign taxes paid against its U.S. tax liability.

Question 13

The United States has jurisdiction to tax income earned by any foreign corporation that is a controlled subsidiary of a U.S.parent corporation.

Accepted Answer

The answer of The United States has jurisdiction to tax...

Question 14

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

Accepted Answer

This is an accurate definition of a tax treaty.

Question 15

The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.

Accepted Answer

The foreign tax credit is available for income taxes paid to a foreign jurisdiction, not for property taxes.

Question 16

A U.S.taxpayer can make an annual election to take a credit or a deduction for foreign income taxes paid.

Accepted Answer

This is true. A taxpayer may elect to claim a foreign tax credit or a deduction for foreign income taxes paid on their tax return, but not both. The choice will depend on their specific tax situation and could have an impact on their overall tax liability.

Question 17

Foreign value-added taxes and excise taxes are eligible for the U.S.foreign tax credit.

Accepted Answer

Foreign value-added taxes (VAT) are not eligible for the U.S. foreign tax credit; only income, war profits, and excess profits taxes qualify. Excise taxes are also generally not eligible unless they are in lieu of an income tax.

Question 18

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

Accepted Answer

This is typically known as a "permanent establishment" and is a common provision in international tax treaties to ensure that multinational companies pay taxes in the countries where they conduct business activities.

Question 19

A foreign branch operation of a U.S.corporation is not a separate legal entity.

Accepted Answer

A foreign branch operation of a U.S. corporation is considered an extension of the corporation itself, not a separate legal entity. It operates under the legal umbrella of the parent company.

Question 20

Excess foreign tax credits can only be carried to future tax years.

Accepted Answer

Excess foreign tax credits can be carried back one year and then carried forward up to ten years, allowing taxpayers to apply these credits to past and future tax liabilities.

Quiz 13: Jurisdictional Issues in Business Taxation