Question 1

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Accepted Answer

As Cecilia spent more than 90 days working in the United States, her income will be treated as U.S. source and subject to U.S. taxation. Since there is no income tax treaty between the United States and Brazil, Cecilia's income is subject to U.S. taxation.

Question 2

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax.

Accepted Answer

This is true. The U.S. individual can claim a credit on their U.S. tax return for the 15 percent withholding tax paid to the Canadian government, as an "in lieu of" tax. This helps to avoid double taxation of the same income.

Question 3

All taxes paid to a foreign government by a U.S. corporation are creditable on the corporation's U.S. tax return.

Accepted Answer

False

Question 4

A hybrid entity established in Ireland is treated as a flow-through entity for U.S. tax purposes and a corporation for Irish tax purposes.

Accepted Answer

This is true. Ireland recognizes hybrid entities as separate taxable entities and applies corporation tax to them, while the U.S. treats them as flow-through entities and taxes the owners directly on their share of the entity's income.

Question 5

Alex, a U.S. citizen, became a resident of Belgium in 2016. Alex will no longer be subject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty.

Accepted Answer

The answer of Alex, a U.S. citizen, became a resident...

Question 6

Marcel, a U.S. citizen, receives interest income from bonds issued by a Dutch corporation. The interest income will be considered U.S. source income for U.S. tax purposes.

Accepted Answer

Interest income from bonds issued by a foreign corporation (in this case, a Dutch corporation) is generally considered foreign source income for U.S. tax purposes, not U.S. source income.

Question 7

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Accepted Answer

This statement is true. Nexus refers to the connection or link between a taxpayer or transaction and a particular jurisdiction, and it is used by governments to determine whether they have the authority to impose taxes on that taxpayer or transaction.

Question 8

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S. persons outside the United States.

Accepted Answer

The statement is true. The foreign tax credit regime allows U.S. persons to offset their U.S. tax liability by the amount of foreign income tax they have paid on the same income, thereby avoiding double taxation.

Question 9

Under most U.S. treaties, a resident of the other country must have a permanent establishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

Accepted Answer

Most U.S. treaties follow the principle of "permanent establishment" which states that a resident of the other country must have a physical presence in the United States before being subject to U.S. taxation on business profits earned within the United States.

Question 10

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.

Accepted Answer

The answer of U.S. individuals and corporations are eligible for...

Question 11

A non U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

Accepted Answer

This is true. A non-U.S. citizen with a green card is considered a resident alien for tax purposes as long as they meet the substantial presence test, meaning they have been present in the U.S. for at least 31 days in the current year and a total of 183 days over a three-year period that includes the current year and the two years immediately before it.

Question 12

One of the tax advantages to using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

Accepted Answer

This is true for U.S. citizens and residents who own and operate foreign corporations. They can defer U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States. This is known as deferral of foreign income. However, it's important to note that there are certain rules and limitations to this tax advantage.

Question 13

"Outbound taxation" deals with the U.S. tax rules that apply to U.S. persons doing business outside the United States.

Accepted Answer

"Outbound taxation" specifically pertains to the taxation of U.S. persons (individuals, corporations, etc.) engaged in business activities outside of the United States. Therefore, the statement is true.

Question 14

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. For foreign tax credit purposes, the dividend will always be characterized as passive category income.

Accepted Answer

The answer of Alhambra Corporation, a U.S. corporation, receives a...

Question 15

Deductible interest expense incurred by a U.S. corporation will always be treated as a U.S. source deduction.

Accepted Answer

Deductible interest expense incurred by a U.S. corporation may be treated as foreign source deduction if it is related to income from foreign sources.

Question 16

Amy is a U.S. citizen. During the year she earned income from an investment in a French company. Amy will be subject to U.S. taxation on her income under the principle of source-based taxation.

Accepted Answer

Amy will be subject to U.S. taxation on her worldwide income, including income from foreign sources, under the principle of worldwide taxation, not source-based taxation.

Question 17

The United States generally taxes U.S. source fixed and determinable, annual or periodic income (FDAP) earned by non-U.S. persons by applying a withholding tax to the gross amount of income.

Accepted Answer

This is true. The U.S. generally imposes a withholding tax on FDAP income received by non-U.S. persons at a flat rate of 30% (or lower rate under certain tax treaties). The gross amount of income is subject to withholding, which is then remitted to the Internal Revenue Service (IRS).

Question 18

The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S. source income.

Accepted Answer

The gross profit from a sale of inventory will depend on various factors such as the sourcing of raw materials, manufacturing, and distribution. It is possible for a portion of the gross profit to be treated as foreign source income if certain criteria are met. Therefore, the statement is false.

Question 19

Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

Accepted Answer

Once a U.S. corporation chooses a method to allocate interest expense, it can change the method without the permission of the commissioner of the Internal Revenue Service as long as it follows the appropriate procedures and obtains approval from its shareholders.

Question 20

Philippe is a French citizen. During 2016 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2016, he will not be treated as a resident alien for U.S. tax purposes.

Accepted Answer

The answer of Philippe is a French citizen. During 2016...

Quiz 24: The Us Taxation of Multinational Transactions