Question 1

Match the definition with the correct term.
a. Inbound
b. Outbound
c. Allocation and apportionment 
d. Qualified business unit
e. Tax haven
f. Income tax treaty 
g. Section 482
-U.S. taxpayers earning income outside the United States.

Accepted Answer

Outbound activities refer to U.S. taxpayers or businesses earning income outside the United States, as it involves the movement of funds or income from the U.S. to other countries.

Question 2

Match the definition with the correct term.
a. Inbound
b. Outbound
c. Allocation and apportionment 
d. Qualified business unit
e. Tax haven
f. Income tax treaty 
g. Section 482
-Method for sourcing income and deductions.

Accepted Answer

The answer of Match the definition with the correct term.
a....

Question 3

A deferral of Federal corporate income taxes by a multinational taxpayer is possible by using:

Accepted Answer

A deferral of Federal corporate income taxes can be achieved by using a subsidiary corporation in another country, as it allows the multinational taxpayer to defer U.S. taxes on foreign income until it is repatriated.

Question 4

To reduce current income taxation, a U.S. person might transfer to a subsidiary in a tax haven country:

Accepted Answer

Both active business assets and investment assets can be transferred to a subsidiary in a tax haven country to reduce current income taxation.

Question 5

Which of the following foreign taxes paid by a U.S. corporation may be eligible for the foreign tax credit?

Accepted Answer

The answer of Which of the following foreign taxes paid...

Question 6

A foreign currency gain or loss might occur year when:

Accepted Answer

The answer of A foreign currency gain or loss might...

Question 7

U.S. income tax treaties can be described as:

Accepted Answer

U.S. income tax treaties are bilateral, meaning that they are agreements between the United States and one other country. These treaties serve to avoid double taxation of income earned in both countries and may also include provisions to prevent tax evasion and promote cooperation between tax authorities.

Question 8

An effective transfer pricing strategy would:

Accepted Answer

The answer of An effective transfer pricing strategy would:
...

Question 9

Under a territorial income tax system, a country assesses an income tax on:

Accepted Answer

A territorial income tax system taxes the income of all entities earned within its borders. It does not tax the income of its citizens earned in other countries.

Question 10

USCo, a U.S. corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings. What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Accepted Answer

The deemed paid foreign tax credit is calculated as the proportion of foreign taxes paid relative to the dividend received. ForCo paid $200,000 in foreign taxes on $1 million of earnings, so the tax rate is 20%. The dividend received by USCo is $100,000, so the deemed paid foreign tax credit is 20% of $100,000, which is $20,000.

Question 11

Match the definition with the correct term.
a. Inbound
b. Outbound
c. Allocation and apportionment 
d. Qualified business unit
e. Tax haven
f. Income tax treaty 
g. Section 482
-Bilateral agreement between two countries related to tax issues.

Accepted Answer

An income tax treaty is a bilateral agreement between two countries that addresses tax issues related to cross-border transactions and aims to avoid double taxation of income.

Question 12

Match the definition with the correct term.
a. Inbound
b. Outbound
c. Allocation and apportionment 
d. Qualified business unit
e. Tax haven
f. Income tax treaty 
g. Section 482
-Treasury powers over transfer pricing.

Accepted Answer

Section 482 of the Internal Revenue Code grants the U.S. Treasury the authority to adjust income, deductions, credits, or allowances between related entities to prevent evasion of taxes or to clearly reflect income. This is directly related to transfer pricing, which involves the pricing of goods, services, and intangible property between related entities.

Question 13

Identifying an income item as U.S source creates U.S. taxable income for a:

Accepted Answer

Non-U.S. taxpayers are subject to U.S. tax on their U.S. source income, while U.S. taxpayers are taxed on their worldwide income, regardless of the source.

Question 14

USCo, a U.S. corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000 and its U.S. tax liability before the foreign tax credit is $315,000. What is USCo's allowed foreign tax credit?

Accepted Answer

The allowed foreign tax credit is the lesser of the actual foreign taxes paid ($70,000) or the U.S. tax liability on the foreign-source income. The U.S. tax liability on the foreign-source income is calculated as (foreign-source income / worldwide taxable income) * U.S. tax liability before the foreign tax credit = ($700,000 / $1,500,000) * $315,000 = $147,000. Since $70,000 (actual foreign taxes paid) is less than $147,000 (U.S. tax liability on the foreign-source income), the allowed foreign tax credit is $70,000.

Question 15

A U.S. parent can deduct the current operating loss of a non-U.S. entity that it owns if the non-U.S. entity is operated as a:

Accepted Answer

A U.S. parent can deduct the current operating loss of a non-U.S. entity if it is operated as a branch, as branches are not separate legal entities and their income and losses are directly included in the U.S. parent's tax return. Subsidiaries, being separate legal entities, do not allow for such direct deductions.

Question 16

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

Accepted Answer

The primary purpose of the Subpart F income provisions is to prevent U.S. taxpayers from shifting income from the U.S. to low-tax non-U.S. jurisdictions. This is achieved by requiring U.S. shareholders of certain foreign corporations to include in their taxable income currently (i.e. without deferral) their pro rata share of certain types of income earned by the foreign corporation, regardless of whether the income is actually distributed to the shareholders.

Question 17

Match the definition with the correct term.
a. Inbound
b. Outbound
c. Allocation and apportionment 
d. Qualified business unit
e. Tax haven
f. Income tax treaty 
g. Section 482
-Foreign taxpayers earning income inside the United States.

Accepted Answer

Inbound taxation refers to the tax principles and regulations that apply to foreign individuals or entities earning income within a country, in this case, the United States.

Question 18

U.S. income tax treaties:

Accepted Answer

Income tax treaties with African countries are rare compared to other regions of the world. However, choice A is not accurate as income tax treaties can involve more or less than three to seven countries as treaty partners. Choice B is also incorrect as income tax treaties may have varying durations and terms of renewability, depending on the specific agreement. Choice D is incorrect as income tax treaties with European countries are quite common.

Question 19

As to the sourcing rules applicable to sales of software:

Accepted Answer

The sourcing rules for software sales can be applied as either a royalty from the sale of a copyrighted item, or as the sale of personal property. Therefore, both option A and B are correct.

Question 20

In creating a foreign subsidiary, to avoid current income taxation, a U.S. person should transfer ownership to the subsidiary of:

Accepted Answer

The answer of In creating a foreign subsidiary, to avoid...

Quiz 25: Taxation of International Transactions

Match the definition with the correct term. a. Inbound b. Outbound c. Allocation and apportionment d. Qualified business unit e. Tax haven f. Income tax treaty g. Section 482 -U.S. taxpayers earning income outside the United States.

Match the definition with the correct term. a. Inbound b. Outbound c. Allocation and apportionment d. Qualified business unit e. Tax haven f. Income tax treaty g. Section 482 -Method for sourcing income and deductions.