Question 1

Deductible interest expense incurred by a U.S.corporation will always be treated as a U.S.source deduction.

Accepted Answer

Deductible interest expense incurred by a U.S. corporation may be treated as foreign source deduction if it is related to income from foreign sources.

Question 2

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Accepted Answer

This statement is true. Nexus refers to the minimum level of contact required for a state to assert its taxing jurisdiction over a person or business. It is an important concept in international taxation and determines whether a state can tax a particular transaction or entity based on their level of economic presence within its borders.

Question 3

Cecilia,a Brazilian citizen and resident,spent 120 days working in the United States in the current year and earned $50,000.Because she spent more than 90 days in the United States,Cecilia's income will be treated as U.S.source and subject to U.S.taxation.The United States does not have an income tax treaty with Brazil.

Accepted Answer

Since Brazil and the United States do not have an income tax treaty, Cecilia's income earned in the United States will be subject to U.S. taxation. The fact that she spent more than 90 days in the United States also means that her income will be treated as U.S. source.

Question 4

Amy is a U.S.citizen.During the year she earned income from an investment in a French company.Amy will be subject to U.S.taxation on her income under the principle of source-based taxation.

Accepted Answer

Amy will be subject to U.S. taxation on her worldwide income, including income from foreign sources, under the principle of worldwide taxation, not source-based taxation.

Question 5

All taxes paid to a foreign government by a U.S.individual are creditable on the individual's U.S.tax return.

Accepted Answer

Not all taxes paid to a foreign government are creditable on a U.S. individual's tax return. Only certain taxes, primarily income taxes, qualify for the Foreign Tax Credit. Taxes such as sales taxes, value-added taxes (VAT), and luxury taxes typically do not qualify.

Question 6

Under the book value method of allocating and apportioning interest expense for FTC purposes,assets are characterized as being either U.S.or non-U.S.based on their geographic location.

Accepted Answer

Under the book value method for allocating and apportioning interest expense for Foreign Tax Credit (FTC) purposes, assets are characterized based on their functional currency, not their geographic location.

Question 7

Alhambra Corporation,a U.S.corporation,receives a dividend from its 100 percent owned Spanish subsidiary.The dividend is eligible for the 100 percent dividends received deduction.Any income taxes paid to a Spanish taxing authority will be creditable on the U.S.tax return.

Accepted Answer

The 100% Dividends Received Deduction (DRD) applies to certain dividends from foreign corporations, but it does not allow for a foreign tax credit for the taxes paid to the foreign country on those dividends; instead, it allows the domestic corporation to exclude the dividend income from its taxable income.

Question 8

"Outbound taxation" deals with the U.S.tax rules that apply to U.S.persons doing business outside the United States.

Accepted Answer

Outbound taxation refers to the U.S. tax rules that apply to U.S. persons earning income abroad or doing business outside the United States.

Question 9

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S.individual.The withholding tax will be creditable on the individual's U.S.tax return as an "in lieu of" tax.

Accepted Answer

This is true. The U.S. and Canada have a tax treaty that allows for the 15 percent withholding tax to be creditable on the individual's U.S. tax return as an "in lieu of" tax.

Question 10

The foreign tax credit regime is the primary mechanism used by the U.S.government to mitigate or eliminate the potential double taxation of income earned by U.S.individuals outside the United States.

Accepted Answer

The foreign tax credit regime does in fact serve as the primary mechanism used by the U.S. government to prevent double taxation of income earned by U.S. individuals outside of the country. By allowing taxpayers to claim a credit against their U.S. tax liability for foreign taxes paid on the same income, the government is able to reduce the possibility of individuals being taxed on the same income by both the U.S. and foreign governments.

Question 11

Under most U.S.treaties,a resident of the other country must have a permanent establishment in the United States before being subject to U.S.taxation on business profits earned within the United States.

Accepted Answer

This statement is true. Most U.S. tax treaties include a "permanent establishment" clause, which means that a resident of the other country must have a physical presence (such as an office or a business location) in the United States before they can be subject to U.S. taxation on the profits they earn in the U.S.

Question 12

Marcel,a U.S.citizen,receives interest income from bonds issued by a Dutch corporation.The interest income will be considered U.S.source income for U.S.tax purposes.

Accepted Answer

Interest income from bonds issued by a foreign corporation (in this case, a Dutch corporation) is generally considered foreign source income for U.S. tax purposes, not U.S. source income.

Question 13

Alex,a U.S.citizen,became a resident of Belgium in 2019.Alex will no longer be subject to U.S.taxation on income he earns in Belgium if such income is exempted from tax under the U.S.-Belgium treaty.

Accepted Answer

The answer of Alex,a U.S.citizen,became a resident of Belgium in...

Question 14

The United States generally taxes U.S.source fixed and determinable,annual or periodic income (FDAP)earned by non-U.S.persons by applying a withholding tax to the gross amount of income.

Accepted Answer

This is generally true, as non-U.S. persons are subject to withholding tax on their U.S.source FDAP income, which includes passive income such as interest, dividends, rents, and royalties. However, there may be exceptions or exemptions available under certain tax treaties or other provisions of the U.S. tax code.

Question 15

The gross profit from a sale of inventory manufactured in the United States and sold by a U.S.retailer to a customer in Spain will always be treated as 100 percent U.S.source income.

Accepted Answer

The answer of The gross profit from a sale of...

Question 16

One of the tax advantages to an individual using a corporation through which to earn income in Germany is deferral of U.S.taxation on active business income earned by the corporation until such income is remitted back to the United States.

Accepted Answer

This is correct. The deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States is a tax advantage for individuals using a corporation to earn income in Germany. This means that the income is only subject to German taxation until it is brought back to the United States, at which point it becomes subject to U.S. taxation.

Question 17

Philippe is a French citizen.During 2019 he spent 150 days in the United States on business.Because Philippe does not spend 183 days in the United States in 2019,he will not under any circumstances be treated as a resident alien for U.S.tax purposes.

Accepted Answer

The answer of Philippe is a French citizen.During 2019 he...

Question 18

U.S.corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100 percent owned foreign corporations,even if the dividend qualifies for the 100 percent dividends received deduction.

Accepted Answer

U.S. corporations are generally not eligible for a foreign tax credit for taxes imposed on dividends that qualify for the 100 percent dividends received deduction (DRD) under the participation exemption system, as the purpose of the DRD is to exempt foreign dividends from U.S. taxation, negating the need for a foreign tax credit.

Question 19

A non-U.S.citizen with a green card will always be treated as a resident alien for U.S.tax purposes regardless of the number of days she spends in the United States during the current year.

Accepted Answer

A non-U.S. citizen with a green card is classified as a resident alien for U.S. tax purposes and is subject to taxation on their worldwide income, regardless of the number of days spent in the United States during the current year. This classification applies unless the individual makes a valid election to be treated as a nonresident alien for tax purposes.

Question 20

A hybrid entity established in Ireland is treated as a flow-through entity for U.S.tax purposes and a corporation for Irish tax purposes.

Accepted Answer

This statement is true. According to the U.S.-Ireland Income Tax Treaty, a hybrid entity established in Ireland is treated as a flow-through entity for U.S. tax purposes (i.e. disregarded as an entity separate from its owners), but is treated as a corporation for Irish tax purposes. This can lead to potential tax planning opportunities and pitfalls, as the tax treatment of the entity may differ between the two jurisdictions.

Quiz 24: The Ustaxation of Multinational Transactions