A foreign corporation,not resident in a treaty country,has a U.S.branch that earns effectively connected E & P of $4 million for the tax year and increases its investments in U.S.property (its U.S.net equity)by $1,600,000.It pays a U.S.corporate income tax of $2,153,846.Its branch profits tax is:

Question

Quizplus · Accepted Answer

The branch profits tax is imposed on the after-tax earnings remitted to the foreign corporation by its U.S. branch. Therefore, the branch profits tax is calculated as 30% of the effectively connected earnings and profits (E&P) of the U.S. branch, reduced by the branch's reinvestments in U.S. property. In this case, the effectively connected E&P is $4 million, and the U.S. net equity increase is $1.6 million. Therefore, the taxable amount subject to the branch profits tax is $2.4 million ($4 million - $1.6 million). The branch profits tax is calculated as 30% of $2.4 million, or $720,000. Therefore, the correct answer is B) $720,000.

A Foreign Corporation,not Resident in a Treaty Country,has a U