19. Fullerton Company (a U.S. taxpayer) has wholly-owned subsidiaries located in Hungary and Hong Kong. The Hungarian operation purchases electric generators manufactured by Fullerton and sells them throughout Eastern Europe; 90 percent of sales are made outside of Hungary. The Hungarian subsidiary generated pretax income of $200,000 in the current year. The Hong Kong subsidiary is an investment company that makes investments in world financial markets; 100 percent of its income is generated from passive investments. The Hong Kong subsidiary generated pretax income of $100,000 in the current year. Both subsidiaries distribute 100 percent of income to Fullerton Company as a dividend each year. Corporate income tax rates and withholding rates are provided in Exhibits 8.1 and @ 8.3. Required: a. Explain why the income earned by the subsidiaries in Hungary and Hong Kong should be included in Fullerton's U.S. taxable income. b. Determine the amount of foreign tax credit allowed by the United States in the current year and the amount of excess foreign tax credit, if any. EXHIBIT 8.1 International Corporate Tax Rates, 2017 Country Effective Tax Rate (%) Country Effective Tax Rate (%) Argentina 35 Italy 24 Australia 30 Japan 30.860 Austria 25 Korea (South) 22 Belgium 33.99 Malaysia 24 Brazil 34a Mexico 30 Canada 26.56 Netherlands 25 Chile 25.5 New Zealand Main content China 25 Russia 20 Czech Republic 19 Singapore 17 Denmark 22 Spain 25 France 33.33 Sweden 22 Germany 29.79 Switzerland 17.77e Greece 30 Taiwan 17 Hong Kong 16.5 Thailand 20 Hungary 9 Turkey 20 India 30 United Kingdom 19 Indonesia 25 United States 40 Ireland 12.5 Venezuela 34 Israel 24 Global Average 24.25