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 percent.For every $10,000,000 of income the subsidiary reports,you will owe taxes to the U.S.Treasury in the amount of

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The Irish subsidiary's income tax rate is only 12 1/2 percent, so for every $10,000,000 of income, the subsidiary will pay $1,250,000 in taxes. However, since the subsidiary is a foreign entity, the U.S. will allow the parent company to claim a foreign tax credit for taxes paid in Ireland.

The foreign tax credit is calculated by taking the lesser of the foreign taxes paid or the U.S. tax liability that would have been due if the income was not earned in a foreign country. In this case, the $1,250,000 paid in Irish taxes is less than the U.S. tax liability ($4,000,000), so the parent company would receive a foreign tax credit for the full amount of the Irish taxes.

Therefore, the net amount owed to the U.S. Treasury for every $10,000,000 of income reported by the Irish subsidiary would be $2,750,000 ($4,000,000 U.S. tax liability - $1,250,000 foreign tax credit).

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