Question 1

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

Accepted Answer

True

Question 2

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 is correct. 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. This means that the entity's profits and losses are passed through to its owners for U.S. tax purposes, but the entity itself is subject to Irish corporate tax.

Question 3

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. individual can claim the withholding tax as a credit on their U.S. tax return under the "foreign tax credit" provision.

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 under the principle of worldwide income taxation, which taxes U.S. citizens on their global income, not just the income earned within the U.S.

Question 5

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary.The dividend is eligible for the 100percent 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 applies to certain dividends from foreign corporations, but it does not automatically make foreign taxes paid creditable. The foreign tax credit is subject to various limitations and requirements under U.S. tax law, and not all taxes paid to a foreign government are creditable against U.S. tax liability.

Question 6

Philippe is a French citizen. During 2020 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2020, he will not under any circumstances be treated as a resident alien for U.S. tax purposes.

Accepted Answer

The Substantial Presence Test for determining tax residency status in the U.S. considers not only the current year's days of presence but also a fraction of the days in the two preceding years. If the total equals or exceeds 183 days, Philippe could be considered a resident alien for tax purposes, even without spending 183 days in the U.S. in the current year.

Question 7

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

Accepted Answer

The source of interest expense for a U.S. corporation is determined by the tax code's interest allocation rules, which allocate interest expense based on the taxpayer's assets, not solely by the location of the borrower. This means interest expense can be allocated and apportioned to foreign sources if the corporation has foreign assets, affecting foreign tax credit limitations.

Question 8

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

The source of interest income is generally considered to be from the country where the payer is resident. Since the corporation issuing the bonds is Dutch, the interest income would be considered foreign source income for U.S. tax purposes.

Question 9

Alex, a U.S. citizen, became a resident of Belgium in 2020. 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

U.S. citizens are taxed on their worldwide income regardless of where they live. While the U.S.-Belgium tax treaty may provide for certain benefits or reduced rates, it does not exempt U.S. citizens from U.S. taxation on income earned abroad. They must still file U.S. tax returns and may claim foreign tax credits or exclusions to avoid double taxation.

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 is indeed 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.

Question 11

One of the tax advantages toan 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 true as per the current U.S. tax laws, under which active business income earned by a foreign corporation is not subject to U.S. taxation until it is repatriated to the United States. However, there are certain exceptions and limitations to this rule, such as the Subpart F rules and the GILTI provisions.

Question 12

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 is generally true for most U.S. tax treaties. However, there may be exceptions and variations depending on the specific treaty and its provisions.

Question 13

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 14

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 types of taxes, such as income taxes, are typically eligible for the Foreign Tax Credit. Other taxes, like sales taxes or property taxes, are generally not creditable.

Question 15

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

The United States generally imposes a withholding tax on U.S. source FDAP income earned by non-U.S. persons. This tax is applied to the gross amount of income earned, and is designed to ensure that non-U.S. persons pay taxes on the income they earn in the U.S.

Question 16

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

Nexus refers to the connection or link that a government establishes between a person or transaction and its jurisdiction in order to impose taxes. It involves criteria such as physical presence, economic activity, and legal domicile of the taxpayer.

Question 17

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 considered a resident alien for U.S. tax purposes if they meet the substantial presence test or if they meet the green card test. The number of days spent in the United States during the current year is only one factor in determining residency status, but a green card holder is always treated as a resident alien regardless of the number of days spent in the U.S.

Question 18

All income earned by a Swiss corporation owned by a U.S. corporation is deferred from U.S. taxation until such income is remitted back to the United States.

Accepted Answer

Under the U.S. tax system, certain types of income earned by foreign subsidiaries (including those owned by U.S. corporations) are subject to current taxation under the Subpart F rules or the Global Intangible Low-Taxed Income (GILTI) provisions, rather than being deferred until repatriation.

Question 19

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 introduced by the Tax Cuts and Jobs Act of 2017. The rationale is that since the income is not subject to U.S. tax due to the DRD, no credit is allowed for foreign taxes paid on that income.

Question 20

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

As per the given information, Cecilia's income from working in the United States will be treated as U.S. source and subject to U.S. taxation because she spent more than 90 days in the country. As there is no income tax treaty between the United States and Brazil mentioned, it is assumed that there isn't one in place.

Quiz 13: The Us Taxation of Multinational Transactions