Avon’s Foreign-Source Income. Avon is a U.S.-based direct seller of a wide array of products. Avon markets leading beauty, fashion, and home products in more than 100 countries. As part of the training in its corporate treasury offices, it has its interns build a spreadsheet analysis of the following hypothetical subsidiary earnings/distribution analysis. Use the spreadsheet presented in Exhibit 15.6 for your basic structure.

a. What is the total tax payment, foreign and domestic combined, for this income?

b. What is the effective tax rate paid on this income by the U.S.-based parent company?

c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 45%
and there were no withholding taxes on dividends?

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Baseline Values Case 1 Case 2 a. Foreign corporate income tax rate 28% 45% 35% 35% b. U.S. corporate income tax rate c. Foreign dividend withholding tax rate 15% 0% d. U.S. ownership in foreign firm 100% 100% e. Dividend payout rate of foreign firm 100% 100%