Reference no: EM131752732

Question: Assume that U.K. employs the worldwide (nationality) approach in taxing foreign source income and has FTC provisions similar to those in the U.S. Further, assume that the income tax rate in U.K. is 30 percent and that the taxable income from Zantac sales generated by GSK (U.S.) in April 199X is $25 million. All of the after-tax income of GSK (U.S.) (a fully owned subsidiary of GSK (U.K.)) is repatriated as dividends to the parent company after the payment of applicable withholding taxes. For the four independent situations given below, compute the net cash outflows for foreign taxes for GSK (U.K.). Note that foreign tax credit will be allowed by the U.K. government for taxes deemed to have been paid to the U.S. government on the repatriated dividends.

U.S. Income Tax Rate U.S. Withholding Tax Rate on Dividends

Situation A 20% None

Situation B 35% None

Situation C 20% 30%

Situation D 20% 10%