Question 1

Under most U.S. treaties, a resident of the other country must have a permanent establishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

Accepted Answer

This statement is true. Under most U.S. tax treaties, a resident of the other country must have a permanent establishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

Question 2

All taxes paid to a foreign government by a U.S. corporation are creditable on the corporation's U.S. tax return.

Accepted Answer

False

Question 3

Deductible interest expense incurred by a U.S. corporation will always be treated as a U.S. source deduction.

Accepted Answer

Deductible interest expense incurred by a U.S. corporation may be treated as foreign source deduction if it is related to income from foreign sources.

Question 4

Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

Accepted Answer

Once a U.S. corporation chooses a method to allocate interest expense, it can change its method without obtaining the permission of the commissioner of the Internal Revenue Service. However, it must obtain approval from the IRS if the change is considered a change in accounting method.

Question 5

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax.

Accepted Answer

This is correct. The U.S. and Canada have a tax treaty which allows for the withholding tax to be credited on the individual's U.S. tax return as an "in lieu of" tax.

Question 6

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Accepted Answer

The statement correctly states that Cecilia's income earned in the United States will be treated as U.S. source and subject to U.S. taxation since she spent more than 90 days in the country. It also correctly states that there is no income tax treaty between the United States and Brazil.

Question 7

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Accepted Answer

This is the correct definition of nexus.

Question 8

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. For foreign tax credit purposes, the dividend will always be characterized as passive category income.

Accepted Answer

The answer of Alhambra Corporation, a U.S. corporation, receives a...

Question 9

One of the tax advantages to using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

Accepted Answer

The deferral of U.S. taxation on active business income earned by a corporation in Germany until it is remitted back to the United States is a tax advantage of using a corporation structure. This is because income earned by the corporation is taxed in Germany, and the United States generally allows for a foreign tax credit to offset U.S. tax liability on the same income when it is eventually brought back to the U.S. This deferral can provide cash flow benefits and may allow for more strategic tax planning.

Question 10

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S. persons outside the United States.

Accepted Answer

The foreign tax credit regime allows U.S. taxpayers to offset their U.S. tax liability with taxes paid or accrued to foreign countries on income earned abroad, thus avoiding or reducing double taxation. This is the primary mechanism used by the U.S. government to prevent double taxation of income earned by U.S. persons outside the United States.

Question 11

The United States generally taxes U.S. source fixed and determinable, annual or periodic income earned by non-U.S. persons by applying a withholding tax to the gross amount of income.

Accepted Answer

This is generally true for certain types of income such as interest, dividends, and royalties. However, there are certain exceptions and limitations to this rule, such as tax treaties with other countries and exemptions for certain types of income or foreign persons.

Question 12

A non U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

Accepted Answer

This is true. A non-U.S. citizen with a green card is considered a resident alien for tax purposes as long as they meet the substantial presence test, meaning they have been present in the U.S. for at least 31 days in the current year and a total of 183 days over a three-year period that includes the current year and the two years immediately before it.

Question 13

"Outbound taxation" deals with the U.S. tax rules that apply to U.S. persons doing business outside the United States.

Accepted Answer

Outbound taxation specifically pertains to U.S. persons or entities that are conducting business activities outside of the United States and how they are taxed by the U.S. government.

Question 14

Philippe is a French citizen. During 2014 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2014, he will not be treated as a resident alien for U.S. tax purposes.

Accepted Answer

The answer of Philippe is a French citizen. During 2014...

Question 15

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.

Accepted Answer

The answer of U.S. individuals and corporations are eligible for...

Question 16

Marcel, a U.S. citizen, receives interest income from bonds issued by a Dutch corporation. The interest income will be considered U.S. source income for U.S. tax purposes.

Accepted Answer

Interest income from bonds issued by a foreign corporation (in this case, a Dutch corporation) is generally considered foreign source income for U.S. tax purposes, not U.S. source income.

Question 17

Alex, a U.S. citizen, became a resident of Belgium in 2013. Alex will no longer be subject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty.

Accepted Answer

U.S. citizens are subject to U.S. taxation on their worldwide income, regardless of residency. The U.S.-Belgium tax treaty may provide relief from double taxation, but it does not exempt U.S. citizens from U.S. taxes.

Question 18

Amy is a U.S. citizen. During the year she earned income from an investment in a French company. Amy will be subject to U.S. taxation on her income under the principle of source-based taxation.

Accepted Answer

Amy will be subject to U.S. taxation on her worldwide income, including income from foreign sources, under the principle of worldwide taxation, not source-based taxation.

Question 19

A hybrid entity established in Ireland is treated as a flow-through entity for U.S. tax purposes and a corporation for Irish tax purposes.

Accepted Answer

This statement is true. A hybrid entity established in Ireland is classified as a "check-the-box" entity for U.S. tax purposes, which means that it can choose whether to be treated as a disregarded entity, partnership, or corporation. However, for Irish tax purposes, the entity is typically classified as a corporation.

Question 20

The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S. source income.

Accepted Answer

The gross profit from a sale of inventory manufactured in the United States and sold in Spain would be apportioned based on applicable sourcing rules under the tax laws of both countries. It would not necessarily be treated as 100 percent U.S. source income.

Quiz 24: The Us Taxation of Multinational Transactions