McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 8

Paton Corporation, a U.S. corporation, owns 100 percent of the stock of Tappan Ltd, a British corporation, and 100 percent of the stock of Monroe N.V., a Dutch corporation. Monroe has post-1986 undistributed earnings of €600 and post-1986 foreign income taxes of $400. Tappan has post-1986 undistributed earnings of £800 and post-1986 foreign income taxes of $200. During the current year, Tappan paid Paton a dividend of £100, and Monroe paid Paton a dividend of €100. The dividends were exempt from withholding tax under the U.S.-UK and U.S.-Netherlands income tax treaties. The exchange rates are as follows: €1:$1.50 and £1:$2.00.
a. Compute Paton's deemed paid credit on the dividends it received from Tappan and Monroe.
b. Assume this is Paton's only income and compute the company's net U.S. tax after allowance of any foreign tax credits.