Orchid Inc.,a U.S.multinational with a 34% marginal tax rate,owns a foreign subsidiary operating in a country with a 25% income tax.This year,the subsidiary generated $400,000 taxable income.What is the total tax burden (domestic and foreign)on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no subpart F income?

Question

Quizplus · Accepted Answer

The foreign subsidiary pays 25% tax on its $400,000 income, which is $100,000. Since the earnings are not repatriated and there is no subpart F income, the U.S. does not impose additional tax, so the total tax burden is $100,000.