Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

Gross profit from a sale of inventory manufactured in the United States and sold in Spain may be subject to allocation and apportionment rules based on the location of the sale, the production activities, and other factors. Therefore, it may not always be treated as 100 percent U.S. source income.

Question 3

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 4

One of the tax advantages to 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 deferral of U.S. taxation on active business income earned by a corporation in Germany applies until such income is repatriated back to the United States.

Question 5

Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

Accepted Answer

Once a U.S. corporation chooses a method to allocate interest expense, it can change its method without obtaining the permission of the commissioner of the Internal Revenue Service. However, it must obtain approval from the IRS if the change is considered a change in accounting method.

Question 6

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 generally true as most U.S. tax treaties follow the Organization for Economic Cooperation and Development (OECD) Model Tax Convention, which requires a permanent establishment in the United States before a nonresident is subject to U.S. taxation on business profits earned within the United States. However, there may be some exceptions or variations in certain treaties.

Question 7

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.

Accepted Answer

The answer of U.S. individuals and corporations are eligible for...

Question 8

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

The information provided in the scenario indicates that Cecilia's income will be treated as U.S. source and subject to U.S. taxation. Additionally, it states that the United States does not have an income tax treaty with Brazil. Therefore, the answer is A - true.

Question 9

Philippe is a French citizen. During 2014 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2014, he will not be treated as a resident alien for U.S. tax purposes.

Accepted Answer

The answer of Philippe is a French citizen. During 2014...

Question 10

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 generally true under U.S. tax law and Ireland's tax treaty with the U.S. However, there may be exceptions or variations depending on the specific circumstances of the entity and its activities.

Question 11

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 12

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 statement is true. The U.S. individual can claim a credit on their U.S. tax return for foreign taxes paid (in this case, the 15 percent withholding tax imposed by Canada). The credit is designed to avoid double taxation of the same income in both the U.S. and Canada.

Question 13

Alex, a U.S. citizen, became a resident of Belgium in 2013. 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 14

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. For foreign tax credit purposes, the dividend will always be characterized as passive category income.

Accepted Answer

The answer of Alhambra Corporation, a U.S. corporation, receives a...

Question 15

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

Accepted Answer

This is known as the non-resident withholding tax, and it applies to a variety of income types including interest, dividends, rents, royalties, and certain types of compensation.

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

This statement correctly defines the concept of nexus.

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

This is true. A non-U.S. citizen with a green card is considered a resident alien for tax purposes as long as they meet the substantial presence test, meaning they have been present in the U.S. for at least 31 days in the current year and a total of 183 days over a three-year period that includes the current year and the two years immediately before it.

Question 18

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

Accepted Answer

The answer of All taxes paid to a foreign government...

Question 19

"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 specifically refers to U.S. tax rules regarding individuals or entities conducting business activities outside the United States.

Question 20

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.

Quiz 24: The US Taxation of Multinational Transactions