Assume that a U.S. company has a subsidiary in the United Kingdom that earned $100,000 (translated from pounds to dollars) in 1996 at a tax rate of 40 percent. The tax rate in the United States is 34 percent, and the withholding tax rate on dividends is 5 percent. If the subsidiary declares a 100% dividend, how much of its income is included in U.S. taxable income?

Question

Quizplus · Accepted Answer

The entire $100,000 earned by the subsidiary is included in U.S. taxable income because the U.S. taxes worldwide income of its residents and citizens, including income earned by foreign subsidiaries.

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