Reference no: EM133506247

Question: Worldwide United Corporation, a U.S. taxpayer, manufactures and sells products through a network of foreign branches and foreign subsidiaries. Foreign subsidiaries are all controlled foreign corporations. Relevant information for these entities for the current fiscal year appears in the following table:

Entity	Country	Legal Form	Activity	Income Before Tax	Income Tax Rate	Dividend Withholding Tax Rate	Net Dividend Received by Parent
A	Bermuda	Corporation	Sales	$8,000,000	0%	0%	$8,000,000
B	Hong Kong	Corporation	Sales	$10,000,000	10%	0%	$9,000,000
C	Ireland	Corporation	Investment	$2,000,000	12.5%	0%	$1,750,000
D	Malaysia	Branch	Manufacturing	$10,000,000	24%	0%	$7,600,000

Additional information:

Entity A purchases finished goods from Entity D and sells them to other markets. 99% of A's income is from sales to foreign customers.
Entity B purchases finished goods from Entity D and sells them to other markets. 60% of B's income is from sales to foreign customers.
Entity C makes passive investments in stocks and bonds in European financial markets. All of C's income is derived from dividends and interest.
Entity D manufactures products that are sold in its home country as well as to related entities within the group.
The U.S. tax rate is 21%.

Required:

• Determine the amount of U.S. taxable income for each entity.
• Calculate the foreign tax credit allowed in the United States, by basket (branch income, general income and passive income) and in total.
• Determine the net U.S. tax liability on foreign source income.