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 generally taxable by both the foreign country in which it operates and the United States, regardless of whether it is repatriated or not. However, the U.S. corporation may be able to claim a foreign tax credit for the taxes paid to the foreign country to avoid double taxation.

Question 2

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 3

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

Accepted Answer

This is true as per the rules of the Internal Revenue Service (IRS). Taxpayers can either claim a foreign tax credit for the foreign taxes paid or deduct them as an itemized deduction on Schedule A of their tax return. However, they cannot do both for the same income.

Question 4

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

Accepted Answer

Foreign subsidiaries are generally not included in a U.S. consolidated tax return. They are usually required to file their own tax returns in the countries where they operate.

Question 5

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

Question 6

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

Accepted Answer

The statement is true. The foreign tax credit is a tax relief provided by the US government to avoid double taxation on income earned from foreign sources. Taxpayers can claim a credit for income taxes paid to a foreign country, up to the amount of US tax liability on that income.

Question 7

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

Accepted Answer

International tax treaties typically include provisions for taxing non-resident firms that maintain a permanent establishment or presence in the treaty country, such as a branch or subsidiary. This helps to ensure that multinational corporations do not completely avoid taxation in countries where they conduct business activities.

Question 8

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 9

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.

Question 10

The United States taxes its citizens on their worldwide incomes.

Accepted Answer

This means that all income earned by U.S. citizens, no matter where in the world it was earned, is subject to taxation by the U.S. government.

Question 11

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

A tax treaty is a bilateral agreement between two countries that outlines each party's tax jurisdiction and establishes rules for the taxation of cross-border income to avoid double taxation.

Question 12

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 13

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 subject to U.S. federal income tax on its worldwide income, not just the income earned within the United States.

Question 14

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 15

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 16

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 17

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 18

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 19

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

The deemed paid foreign tax credit allows a U.S. corporation to claim a credit for foreign taxes paid on dividends received from its foreign subsidiaries, as if the corporation had directly paid those foreign taxes. This provision applies to dividends received prior to 2018.

Question 20

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.

Quiz 13: Jurisdictional Issues in Business Taxation