International_Taxation_Worksheet_Fall_2011_Answer_Key_SP11-1

International_Taxation_Worksheet_Fall_2011_Answer_Key_SP11-1...

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Unformatted text preview: INTERNATIONALBUSINESS200 Name:       DiscussionSectionNumber:    Fall2011    InternationalTaxationWorksheet   Answer Key 3M,theU.S.companythatappliesinnovativetechnologytomanufacturediversifiedindustrialandconsumerproducts,hasa strongglobalpresence.Amongthe200countrieswhere3Msellsitsproducts,GermanyandChinaarequitestrongforthe firm.Assume3Mhastwowhollyowned,andforeignincorporated,subsidiariesinthosenations:3MGermanyand3MChina.   Lastyear(2010)3MGermanyearned400,000,000USDand3MChina600,000,000USD(bothfiguresarepretaxearnings). Supposethesetwosubsidiariespaidoutallafter ­taxearningsbacktotheparentcompany,3MU.S.,headquarteredinSt. Paul,MN,intheformofdividend.  Pleaseusethetaxratesbelowforcalculations: U.S.corporatetaxrate:35% Germancorporatetaxrate:40% Germandividendwithholdingtax:0% Chinesecorporatetaxrate:25% Chinesedividendwithholdingtax:10%   1. Howmuchcorporatetaxdid3MGermanypaytotheGermangovernment? $160 million   2. Howmuchcorporatetaxdid3MGermanypaytotheU.S.government? $0 3.   Howmuchtaxdid3MU.S.paytotheGermangovernmentforreceivingthedividendfrom3M  ­Germany? $0    4. Whatkindoftaxcredit(directorindirect)could3MU.S.getfromthepayments3MGermanymadeinquestion1? Indirect 5.    Howmuchtaxdid3MU.S.owetheU.S.governmentforitsearningsfrom3MGermanyafterallthetaxcreditsare applied?(Note:Thefigurecouldbenegativetoaccountforeffectonoveralltaxliability.)  (-) $20 million     6. Howmuchcorporatetaxdid3MChinapaytotheChinesegovernment? $150 million     7. Howmuchdividenddid3MChinasendbacktoitsparentcompany,3MU.S.?  $450 million  INTERNATIONALBUSINESS200 Name:       DiscussionSectionNumber:      8.    9. Fall2011    InternationalTaxationWorksheet   Howmuchtaxdid3MU.S.paytotheChinesegovernmentforreceivingtheabovedividendfrom3MChina? $45 million Whatkindoftaxcredit(directorindirect)could3MUSgetfromthepaymentitmadeinquestion8?  Direct    10. Howmuchtaxdid3MU.S.owetheU.S.governmentfortheincomeearnedby3MChinaafteralltaxcreditswere applied? $15 million     11. Comparetheanswersinquestions5and10.Brieflyexplainwhyoneisapositivenumberwhiletheotherisnegative?  The corporate tax rate in Germany is higher than the U.S. tax rate and therefore foreign tax credits are created. The overall tax rate on the Chinese corporate tax and the dividend withholding rate are lower than the corporate U.S. tax rate; thus, there is still a tax liability in the U.S. on these earnings.     12. Assume3MUSearnedpre ­taxearningsof1,300,000,000USDin2010.WhatwasthetaxliabilityintheU.S.f orthese earnings? $455 million     13. Assume3Mhadexcesstotalforeigntaxcreditsfor2010.Woulditbeabletoapplythesecreditstotaxesowedonits domesticcorporateincome,whichwascalculatedinnumber12above?Whyorwhynot?  3M could apply the excess foreign tax credits to foreign income tax liabilities in a different year (subject to FASB regulations), but it could not apply the foreign tax credits towards tax liabilities on its U.S. domestic earnings.    End.   ...
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