controlled_US_sub_solution

controlled_US_sub_solution - Solution: Taxation of a...

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Solution : Taxation of a controlled U.S. subsidiary vs. a controlled foreign subsidiary 2010 Kiley Inc. is a wholly owned subsidiary of Southwest Inc., a U.S. corporation. Kiley operates a manufacturing facility in Ireland that makes products for distribution in the United Kingdom and Europe. Under a special incentive program, the manufacturing facility’s profits are subject to Irish income tax at a 10 percent rate. During 2010, Kiley generated $300,000 of taxable income (all from foreign sources), paid $30,000 of Irish corporate income tax, and made no dividend distributions. Southwest generated $400,000 of taxable income from U.S. sources. 2011 During 2011, Kiley generated $200,000 of taxable income (all from non-U.S. sources) and paid $20,000 of Irish corporate income tax. Southwest generated $500,000 of taxable income from U.S. sources. Kiley made dividend distributions to Southwest equal to its after-tax earnings for 2010 and 2011 of $450,000 ($300,000 – $30,000 + $200,000 – $20,000). Under the income tax treaty between the United States and the United Kingdom, no Irish income tax was withheld on the dividend distributions to Southwest.
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Required : [a] Assume that Kiley Inc. is incorporated in the United States. Compute the worldwide tax liability for Southwest and Kiley for 2010. If Kiley is incorporated in the United States, the 2010 consolidated U.S. income tax
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controlled_US_sub_solution - Solution: Taxation of a...

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