A us corporation has two foreign marketing branches, one in France and one in Hong Kong. The current situation is summarized as follows (all numbers in thousands of usd):

(a) The us tax rate is 30 percent, and taxation of foreign and domestic income is separated, with the foreign tax credit applied to the tax on foreign income only. Is there still a US tax due, or is there an unused tax credit?
(b) The parent is currently making a profit on its "sales" to the branches, but considers changing the profit allocation. The company thinks that it can increase or decrease the transfer price by up to 5 percent without creating any problems with the tax authorities, on the condition that the transfer price remains the same for both branches. Should the company increase the price or decrease it?
(c) Is your conclusion in (a) or (b) affected if domestic and foreign income is taxed together (that is, the tax is computed on worldwide income, and then the tax credit is applied)?

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US (domestic ncome) Hong Kon France Sales 1,000 Costs: purchases from parent 500 100 100 10,000 n/a 6,000 1,000 3,000 900 2,100 other expenses preciation Profits Corporate taxes Profits after taxes 1,500 600 -45 (15%) (40%) (30%) including sales to subsidiaries