When excess tax credits go unused,the foreign tax liability for a branch is greater than the corresponding U.S.tax liability when the foreign income tax rate is greater than the U.S.rate.Calculate the total tax liability for a wholly-owned subsidiary when excess tax credits cannot be used in a country given: U.S.tax rate = 35 percent
Foreign tax rate = 39 percent
Withholding tax rate = 5 percent

Question

Quizplus · Accepted Answer

The total tax liability is calculated by adding the foreign tax rate and the withholding tax rate, then subtracting the excess tax credit that cannot be used. The calculation is: 39% + 5% - (39% - 35%) = 42.05%.

When Excess Tax Credits Go Unused,the Foreign Tax Liability for a Branch