Reference no: EM131810003
Stanley, a corporation domiciled in the United Kingdom, formed a U.S. subsidiary (USSub, domiciled in Connecticut) in January 2015. For 2015, USSub had the following income and expenses:
Sales (US-source) $33,000,000
Cost of goods sold (16,000,000)
Gross profit $17,000,000
Selling expenses 4,500,000
General & administrative expenses 6,000,000
Interest expense (on loan from ForCo) 3,750,000
Net income before taxes $2,750,000
1) Assuming a 34 percent US corporate income tax rate, how much income tax will USSub owe? (Input your answer without dollar signs, but with commas--e.g., 10,000).
2) How much tax will Stanley owe under §881? (Ignore the possibility that the US-UK tax treaty may allow a lower tax rate than §881).
3) How much U.S. income tax did Stanley save by using debt in USSub's capital structure (i.e., in connection with the interest payment from USSub to Stanley)?
4) How much could Stanley save by charging USSub a management fee, rather than collecting interest on the debt?