Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows: $\begin{array}{lr}
\text {U.S. source income }&\$1,000,000\
\text {Foreign source income-Country A }&500,000\
\text { Total}&\$1,500,000\
\end{array}$
Fleming paid $50,000 income tax to Country A. Assume Fleming's foreign source income does not qualify as foreign-derived intangible income. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

Question

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows: $\begin{array}{lr}
\text {U.S. source income }&\$1,000,000\
\text {Foreign source income-Country A }&500,000\
\text { Total}&\$1,500,000\
\end{array}$
 Fleming paid $50,000 income tax to Country A. Assume Fleming's foreign source income does not qualify as foreign-derived intangible income. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

Quizplus · Accepted Answer

The U.S. corporate tax rate is 21%. Fleming's worldwide pretax income is $1,500,000. The U.S. tax on this income is $315,000 (21% of $1,500,000). The foreign tax credit is $50,000, reducing the U.S. tax to $265,000. The worldwide tax burden is $265,000 (U.S. tax) + $50,000 (foreign tax) = $315,000. The percentage is $315,000 / $1,500,000 = 21%.

Fleming Corporation, a U Fleming Paid $50,000 Income Tax to Country A