A Japanese branch of a U.S. corporation paid $4,200,000 in taxes to the government of Japan on income it generated there. The corporation is subject to a 35% tax rate in the U.S.
-How much foreign tax credit can be taken in calculating the taxes owed to the U.S.on $10,000,000 of Japanese branch income?

Question

Quizplus · Accepted Answer

The foreign tax credit is equal to the lesser of the foreign taxes paid ($4,200,000) or the U.S. tax liability on the foreign income ($10,000,000 x 35% = $3,500,000). Therefore, the maximum foreign tax credit that can be taken is $3,500,000. Option A is higher than the U.S. tax liability on foreign income, Option C is incorrect as foreign tax credit can be taken, and Option D is not relevant to the question.

A Japanese Branch of a U