How much additional taxes would the parent company pay

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Reference no: EM133607648

Problem

Assume a wholly-owned subsidiary in country A (tax rate = 35%) makes 500 units of a product for $200 each and sells them to the parent company in country B (tax rate = 21%) for 370 USD each. The parent then sells them for 480 USD each in country B. The company has no other costs or sources of revenue. Given this information, answer the following questions:

I. Suppose in the above question, the parent company again wishes to repatriate the profit earned in Country A but this time Country B allows the parent company to claim a Foreign Tax Credit (FTC) for the taxes it paid in Country A. How much additional taxes would the parent company then pay in Country B for the income that it is repatriating from Country A?

II. Assume that the parent company repatriates all the profits from country A to B and there is a Participation Exemption allowed by Country B that provides that only 50% of the repatriated income to be subject to income tax in Country B. Now what is the total tax bill paid in Country B from both income earned in B and income repatriated to B from A?

Reference no: EM133607648

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