French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S. parent. It pays a 10% dividend withholding tax on its remittance. Under current tax law, the parent will owe U.S. tax on this dividend equal to

Question

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The U.S. parent will not owe any additional U.S. tax due to the foreign tax credit, which offsets the U.S. tax liability. The foreign tax credit includes both the French income tax and the withholding tax, totaling $210,000.

French Subsidiary That Earns $1 Million Before-Tax Pays French Tax