Orchid Inc., a U.S. multinational with a 21% marginal tax rate, owns a foreign subsidiary operating in a country with a 15% income tax. This year, the subsidiary generated $400,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no global intangible low-taxed income or subpart F income?

Question

Quizplus · Accepted Answer

The foreign subsidiary's income tax in the foreign country is calculated as:

$400,000 x 15% = $60,000

Since the subsidiary does not repatriate its after-tax earnings, it is not subject to U.S. taxation. Therefore, the total tax burden on the earnings of the foreign subsidiary is $60,000. Hence, option D is the correct answer.