Use the information to answer the following question(s).
Green Valley Exporters USA has $100,000 of before-tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%.
-Refer to Instruction 15.2. If the U.S. treated the taxes paid on income earned in the host country as a tax-deductible expense, then Green Valley's total U.S. corporate tax on the foreign earnings would be:
A) $10,000.
B) $26,250.
C) $35,000.
D) $51,250.

Question

Quizplus · Accepted Answer

Since the host country has a corporate tax rate of 25%, Green Valley Exporters USA paid $25,000 in taxes to the host country. If the U.S. treats these taxes paid on foreign income as tax-deductible expenses, the taxable income will be decreased by $25,000. Thus, the U.S. corporate tax will be calculated on $75,000 ($100,000 - $25,000). The U.S. corporate income tax rate is 35%, so the total U.S. corporate tax on the foreign earnings will be $26,250 ($75,000 x 35%).

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