2. Cholati is a foreign corporation that produces fine chocolates for sale worldwide. Cholati markets it chocolates in the United States through a U.S. limited liability company that is treated as a disregarded entity for U.S. tax purposes. The hybrid branch operates a sales office located in New York City. During the current year, Cholatis effectively connected earnings and profits are $3 million, and its U.S. net equity is $6 million at the beginning of the year, and $4 million at the end of the year. In addition, a review of Cholatis interest expense account indicates that it paid $440,000 of portfolio interest to an unrelated foreign corporation, $200,000 of interest to a foreign corporation which owns 15% of the combined voting power of Cholatis stock and $160,000 of interest to a domestic corporation. Assume that Cholati does not reside in a treaty country.

a) Compute Cholatis branch profits tax, and then complete Section III, Part I, Form 1120-F, page 5, lines 3-6.

b) Determine Cholatis branch interest withholding tax obligations.