Use the information to answer the following question(s).
Rogue River Exporters USA has $100,000 of before tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%.
-Refer to Instruction 20.1. If the U.S. has a bilateral trade agreement with the host country that calls for the total tax paid to be equal to the maximum amount that could be paid in the highest taxing country, what is the total amount of income taxes Rogue River Exporters will pay to the host country, and how much will they pay in U.S income taxes on the foreign earned income?
A)$25,000; $10,000
B)$25,000; $26,250
C)$35,000; $0
D)none of the above

Question

Quizplus · Accepted Answer

Under the trade agreement, the total tax paid cannot exceed the highest tax rate between the host country and the U.S., which is 35%. Therefore, Rogue River Exporters will pay 25% in taxes to the host country, which equals $25,000. They will also pay 10% (35% - 25%) in taxes to the U.S., which equals $10,000. Therefore, the total taxes paid will be $25,000 + $10,000 = $35,000. The correct answer is A.

Use the Information to Answer the Following Question(s)