Question 7

Question 7 - Canada: Income is $200,000, tax is 50%. Total...

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Question 7 7. Foreign Tax Credit (A) Average Foreign Source Income Method Tax paid: Switzerland = 0, Ireland = $10,000, Canada= $100,000 Total tax paid = $0 +$10,000 +100,000 = $110,000 Average tax paid = (110,000/3) = $36,667 Average Income earned in all three foreign countries is: (200,000 + 100000 + 200000)/3 = $166,667 Foreign Tax Percentage= 36,667/166,667 = 22% Since 22% < 35%, Total Foreign Tax Credit is $110,000 (B) Per Country Limitation Switzerland: Income is 200,000, tax is 0%. Since 0% < 35%, No Limitation Ireland: Income is $100,000, tax is 10%. Total Tax paid= $10,000. Since 10% < 35%, No Limitation
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Unformatted text preview: Canada: Income is $200,000, tax is 50%. Total Tax paid = $100,000. Since 50% > 35% there is a Limitation. New Canada Foreign Tax paid = 35% *200,000= $70,000 Total Foreign Tax Credit = $70,000 + $10,000 = $80,000 (C) Post 9/31/2006 Rules General Income= 200,000 General income =50% 200,000* 50% =100,000 limit 35% = 70,000 Passive Income: $200,000 + 100,000 = $300,000 Average Passive Income Tax Percentage = (10,000/300,000) = 3.33%, No Limitation Total Passive Income = 10,000 Total Foreign Tax Credit: 10,000+70,000 = $80,000...
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This note was uploaded on 04/05/2012 for the course ACCT 4221 taught by Professor Crumbley,d during the Spring '08 term at LSU.

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