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Comp SM_Ch25 - CHAPTER 25 TAXATION OF INTERNATIONAL...

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CHAPTER 25 TAXATION OF INTERNATIONAL TRANSACTIONS SOLUTIONS TO PROBLEM MATERIALS Status: Q/P Question/ Present in Prior Problem Topic Edition Edition 1 Tax treaties Unchanged 1 2 Sourcing of income New 3 Sourcing of income Unchanged 3 4 Section 482 Unchanged 4 5 Foreign currency Unchanged 5 6 QBUs Unchanged 6 7 Section 367 Unchanged 7 8 Foreign Personal Holding Company Unchanged 8 9 CFC status New 10 CFC status Unchanged 10 11 Foreign tax credit (FTC) Unchanged 11 12 Section 78 gross up Unchanged 12 13 FIRPTA Unchanged 13 14 U.S. taxation of foreign corporation Unchanged 14 15 Income sourcing Unchanged 15 16 Income sourcing Unchanged 16 17 Income sourcing Unchanged 17 18 Interest expense allocation Unchanged 18 19 Foreign exchange gain or loss Modified 19 20 Foreign exchange gain or loss New 21 Section 367 Modified 21 22 Subpart F income Unchanged 23 23 Pro rata share of CFC income New 24 Foreign Personal Holding Company Unchanged 24 25 Foreign tax credit (FTC) Unchanged 25 26 Foreign tax credit (FTC) Unchanged 26 25-1
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25-2 2005 Comprehensive Volume/Solutions Manual Status: Q/P Question/ Present in Prior Problem Topic Edition Edition 27 Foreign tax credit (FTC) Unchanged 27 28 Indirect FTC Unchanged 28 29 Foreign tax credit (FTC) New 30 Measuring deemed-paid taxes in foreign currency Modified 30 31 Losses and FTC Unchanged 31 32 Analyze foreign investment opportunities Modified 32 33 Tax liability of foreign corporation Unchanged 33 34 Branch profits tax New 35 NRA’s sale of USRPI Unchanged 35 36 Expatriation to avoid tax Unchanged 36 Research Problem 1 Foreign losses and FTC Unchanged 2 Trade or business in U.S. Unchanged 3 Internet activity Unchanged
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Taxation of International Transactions 25-3 CHECK FIGURES 15.a. 15.b. 15.c. 15.d 15.e. 16. 18. 19. 20. 22. 23. $1,200 U.S.-source. $2,600 U.S.-source. $425 U.S.-source. $300 U.S.-source. $2,500 foreign-source. $50,000 U.S.-source income subject to U.S. taxation. $44,100 (tax book value) $0. $5,556 dividend; $0 exchange gain/loss. $390,000 Subpart F income. $223,397. 25. 26. 28. 29. 30. 31. 32. 33. 34. 35. $102,000. $68,300 U.S. tax liability Allowed in d. only. $218,182. $27,174. $3,400. Invest in the stock Exco (6% return vs. 4.62% return). $4,123,000. $48,000 BPT. Taxed on gain realized on sale of Jeff stock.
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25-4 2005 Comprehensive Volume/Solutions Manual DISCUSSION QUESTIONS 1. Investment income such as dividends and interest typically is subject to a withholding tax when earned by a nonresident of a country. Income tax treaties reduce the rate of withholding. p. 25-6 2. Generally, dividends paid by a foreign corporation are foreign-source income. Certain exceptions apply, however, when the dividends are paid by the U.S. branch of a foreign corporation where 25% or more of the foreign corporation’s gross income for the prior three years is effectively connected with a U.S. business. In this case, a portion of the dividends paid by the foreign corporation constitutes U.S.-source income. Example 6 3. TAX MEMORANDUM Date: December 7, 2004 To: U.S. Corporations From: Jean MacKay Subject: Sourcing internet income Sections 861-865 and the regulations thereunder provide specific rules for sourcing different types of income. These rules provide a basis for sourcing interest, dividends,
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