Amsterdam Corporation, a foreign corporation, has a U.S.branch that generates effectively connected earnings and profits (after income taxes) of $700,000 for the tax year.The branch's U.S.net equity at the beginning of the tax year is $3,500,000 and at the end of the tax year is $4,000,000.Amsterdam's branch profits tax for the year is:

Question

Quizplus · Accepted Answer

The branch profits tax is calculated as 30% of the effectively connected earnings and profits, adjusted for changes in U.S. net equity. The increase in net equity is $500,000 ($4,000,000 - $3,500,000), so the adjusted earnings and profits are $200,000 ($700,000 - $500,000). The tax is 30% of $200,000, which is $60,000.

Amsterdam Corporation, a Foreign Corporation, Has a U