Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows: $\begin{array}{lr}
\text {U. S. source income }&\$700,000\
\text {Foreign source income-Country $ X $ }&100,000\
\text { Total}&\$800,000\
\end{array}$
Global paid $15,000 income tax to Country X. Assume Global's foreign source income does not qualify as foreign-derived intangible income. What is Global's U.S. tax liability if it takes the foreign tax credit?

Question

Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows: $\begin{array}{lr}
\text {U. S. source income }&\$700,000\
\text {Foreign source income-Country $ X $ }&100,000\
\text { Total}&\$800,000\
\end{array}$
 Global paid $15,000 income tax to Country X. Assume Global's foreign source income does not qualify as foreign-derived intangible income. What is Global's U.S. tax liability if it takes the foreign tax credit?

Quizplus · Accepted Answer

Global's U.S. tax liability, after taking the foreign tax credit, would be $153,000. This is calculated by first determining the U.S. tax on total income ($800,000) at the corporate tax rate (assumed to be 21% for this example), which equals $168,000. Then, the foreign tax credit ($15,000 paid to Country X) is subtracted from the U.S. tax on total income, resulting in a U.S. tax liability of $153,000 ($168,000 - $15,000).

Global Corporation, a U Global Paid $15,000 Income Tax to Country X