Determining home country taxable income

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Question: Lionais Company has a foreign branch that earns income before income taxes of 500,000 currency units (CU). Income taxes paid to the foreign government are CU 150,000 (30 percent). Sales and other taxes paid to the foreign government are CU 50,000. Lionais Company must include the CU 500,000 of foreign branch income in determining its home country taxable income. In determining its taxable income, Lionais can choose between taking a deduction for all foreign taxes paid or a credit only for foreign income taxes paid. The corporate income tax rate in Lionais' home country is 40 percent.

Required: Determine whether Lionais would be better off taking a deduction or credit for foreign taxes paid.

Reference no: EM131705627

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