A U.S.parent corporation that understates the transfer price of goods sold to a profitable foreign branch increases its foreign tax credit limitation.

Question

Quizplus · Accepted Answer

When a U.S. parent corporation understates the transfer price of goods sold to a profitable foreign branch, it can increase its foreign tax credit limitation by reducing its taxable income in the foreign country and increasing the foreign taxes it paid, which would increase the amount of foreign taxes that can be credited against its U.S. tax liability. However, this can result in tax controversies and disputes with tax authorities in both the United States and the foreign country.

A USParent Corporation That Understates the Transfer Price of Goods Sold