A Foreign Subsidiary Has $2,000,000 of Taxable Income, a (Foreign)

question 40

Multiple Choice

A foreign subsidiary has $2,000,000 of taxable income, a (foreign) corporate tax rate of 25%, and a foreign dividend withholding rate of 10%. The U.S. (domestic) parent has a corporate tax rate of 30%. What are the additional taxes paid by the U.S. domestic parent after the foreign subsidiary pays corporate and withholding taxes? Assume that the foreign subsidiary is 100% owned by the U.S. parent and that all after-tax income is paid to the U.S. parent.

• A) $0.00
• B) $600,000
• C) $405,000
• D) $250,000

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Definitions:

Taxable Income

The amount of an individual's income that is subject to taxation, after all deductions and exemptions.

Domestic Corporations

Companies that are incorporated and operate within the country of their incorporation, subject to its laws and taxation.

Earnings and Profits

A tax term referring to the net income of a company with adjustments for certain tax-related items; crucial for determining how distributions to shareholders are taxed.

FMV

Fair Market Value; the estimated price at which an asset would trade in a competitive auction setting.