Lilly Inc.,a U.S.multinational with a 34% marginal tax rate,conducts a branch operation in a foreign country with a 25% income tax.This year,the branch generated $500,000 taxable income.What is the total tax burden (domestic and foreign)on the earnings of the branch operation?

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Quizplus · Accepted Answer

The foreign tax is $500,000 * 25% = $125,000. The U.S. tax is $500,000 * 34% = $170,000. The U.S. allows a foreign tax credit, so the total tax burden is $170,000 (U.S. tax) since the foreign tax credit offsets the foreign tax paid.

Lilly Inc,A U