A firm that earns $1 million before-tax in Brazil pays Brazilian tax of $250,000 and remits the remaining $750,000 as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current U.S.tax law,the parent will owe U.S.tax on this dividend of

Question

Quizplus · Accepted Answer

The U.S. parent will owe $15,000 in tax after accounting for the foreign tax credit. The U.S. tax rate is 21%, so the tax on $750,000 is $157,500. The parent receives a foreign tax credit for the $75,000 withholding tax and $67,500 of the Brazilian tax, totaling $142,500. Thus, the net U.S. tax owed is $157,500 - $142,500 = $15,000.

A Firm That Earns $1 Million Before-Tax in Brazil Pays