What is the rate of the withholding tax on the dividend

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Question - USco is a United States C Corporation that is wholly-owned by FORco, a company incorporated in country F, which has a tax treaty with the United States similar to the United States Model Treaty. FORco is privately owned by six unrelated residents of Canada. FORco manufactures widgets and earns $500,000 of income, all from the sale of those widgets to USco. USco owns valuable marketing intangibles, which make its resale of the widgets extremely profitable. During the current year, USco earns income of $10 million that USco distributes as a dividend to FORco. After receiving the dividend, FORco pays $6 million of compensation (which is reasonable, ordinary, and necessary) to one of the Canadian individuals, who acts as FORco's CEO and is the brains behind the operations. What is the rate of the withholding tax on the dividend? Why?

Reference no: EM132509777

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