You are a U.S. MNC with a 40 percent U.S. tax rate. You have an Irish subsidiary. The corporate income tax there is 12½%. For every $10,000,000 of income the subsidiary reports, you will owe taxes to the U.S. Treasury in the amount of

Question

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To calculate the amount of taxes owed to the U.S. Treasury, we first need to calculate the amount of income tax paid by the Irish subsidiary.

If the subsidiary reports $10,000,000 of income and the corporate income tax rate in Ireland is 12.5%, then the amount of income tax paid by the subsidiary would be:

$10,000,000 x 0.125 = $1,250,000

Now, the U.S. tax rate is 40%. Therefore, the U.S. tax owed on the subsidiary's income would be:

$1,250,000 x 0.4 = $500,000

Therefore, for every $10,000,000 of income the subsidiary reports, the U.S. MNC would owe $500,000 in taxes to the U.S. Treasury.

So, for an income of $100,000,000, the U.S. MNC would owe:

$500,000 x 10 = $5,000,000

Therefore, the correct answer is C, $2,750,000.

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