Question 1

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 statement is true. The IRS applies a withholding tax to U.S. source fixed and determinable, annual, or periodic income earned by non-U.S. persons. This is true. Non-U.S. persons who earn FDAP income from U.S. sources are subject to U.S. withholding tax on the gross amount of income earned.

Question 2

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 3

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 permanent resident and is therefore treated as a resident alien for tax purposes regardless of the number of days they spend in the United States during the current year. As long as the individual has a green card, they are considered a resident alien for U.S. tax purposes, regardless of the number of days they spend in the United States during the year.

Question 4

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 correct. The withholding tax can be credited against the individual's U.S. tax liability as an "in lieu of" tax. This is the standard withholding tax rate on dividends paid by Canadian corporations to U.S. individuals. The withholding tax can be claimed as a foreign tax credit on the individual's U.S. tax return.

Question 5

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

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

Question 6

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, also known as a disregarded entity, for U.S. tax purposes and a corporation for Irish tax purposes. This means that for U.S. tax purposes, the entity's income and losses flow through to its owners or members, who report their share on their individual tax returns. However, for Irish tax purposes, the entity is treated as a separate legal entity, subject to corporate tax. This is correct. Ireland classifies hybrid entities as corporations for taxation purposes, while the United States treats them as flow-through entities. As a result, they are referred to as "check-the-box" entities that allow taxpayers to choose between and distinguish between their tax obligations in the two countries.

Question 7

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. The United States allows for deferral of taxation on income earned by foreign corporations until it is repatriated back to the US. However, there are certain limitations and requirements that must be met to qualify for this deferral. This is correct. The deferral of U.S. taxation on active business income earned by a foreign corporation is a tax advantage for U.S. individual shareholders because they do not have to pay taxes on the income until it is repatriated (remitted back) to the United States.

Question 8

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

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

Question 9

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 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 allows U.S. individuals to claim a credit for foreign taxes paid on income earned abroad, reducing the amount of U.S. taxes owed on that income and avoiding double taxation. The statement is correct. The foreign tax credit regime allows U.S. taxpayers to offset the taxes paid on income earned overseas against their U.S. income tax liability, thereby preventing double taxation of foreign income.

Question 11

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 (in this case, 2020) but also counts a fraction of the days in the preceding two 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 2020 alone.

Question 12

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 13

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 14

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 15

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 is a true statement. Nexus refers to the connection or link between a taxpayer or transaction and a particular jurisdiction, based on factors such as physical presence, economic activity, or residency. The concept of nexus is important for determining when a government has the authority to impose taxes on a particular person or transaction. This is the definition of nexus.

Question 16

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 a foreign source deduction if it relates to income sourced outside the U.S.

Question 17

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 18

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 (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 19

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 referred to as the "permanent establishment" threshold and is a common feature in many U.S. tax treaties. It means that unless a foreign entity has a fixed place of business in the U.S. (such as an office, factory or other facility), it is generally not subject to U.S. tax on its business profits earned within the U.S. This is generally true under most U.S. tax treaties. However, there may be exceptions or variations depending on the specific treaty and its provisions.

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 Cecilia spent more than 90 days in the United States and the U.S. does not have a tax treaty with Brazil, her income will be treated as U.S. source and subject to U.S. taxation. Since there is no income tax treaty between the United States and Brazil, 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 makes her income U.S. source for tax purposes.

Quiz 13: The Us Taxation of Multinational Transactions