1. USAco is a domestic corporation that manufactures products in the U.S. for distribution in the U.S. and abroad. During the current year, USAco derives a pre-tax profit of $10 million, which includes $1 million of foreign-source income derived from a country X sales office that is considered an unincorporated branch for U.S. tax purposes. The country X corporate income tax rate is 50% and the U.S. tax rate is 35%.

a. What would be the worldwide effective tax rate on the $1 million of foreign profits, assuming the U.S. taxes the worldwide income of domestic corporations, but allows an unlimited credit for foreign income taxes?

b. What would be the worldwide effective tax rate on the $1 million of foreign profits, assuming the U.S. allows a credit for foreign income taxes, but the credit is limited to the U.S. tax attributable to foreign-source income?

c. What would your answer to part (b) change if the foreign tax rate was 30% rather than 50%?

2. Regina receives a dividend of $150 from a corporation in Country Y that has only done business in Country Y in the past. Country Y imposed a $45 (30%) tax on the $150 dividend. How is the $150 dividend taxed (generally, no computations required) in each of the following situations:

a. Regina is a US citizen residing in the US.

b. Regina is a US citizen who has been residing in Country Y for the last 15 years.

c. Regina is a citizen of Country Y and has never visited the US nor conducted any business in the US.