5 Pacific Jewel Airlines (Hong Kong). Pacific Jewel Airlines is a US based air freight firm with a wholly owned subsidiary in Hong Kong. The subsidiary, Jewel Hong Kong, has just completed a long-term planning report for the parent company in San Francisco, in which it has estimated the following expected earnings and payout rates for the years 2011 2014 The current Hong Kong corporate tax rate on this category of income is 17% Hong Kong imposes no withholding taxes on dividends remitted to US investors (per the Hong Kong - United States bilateral tax treaty) The US corporate income tax rate is 38% The parent company wants to repatriate 85% of net income as dividends annually a. Calculate the net income available for distribution by the Hong Kong subsidiary for the years 2011-2014 b. What is the expected amount of the dividend to be remitted to the US parent each year? c. After estimating the theoretical US tax liability on the expected dividend (what is often termed gross-up in the U.S.), what is the total dividend after tax, including all Hong Kong and US taxes, expected each year? d. What is the effective tax rate on this foreign-sourced income per year? a. Calculate the net income available for distribution by the Hong Kong subsidiary for the years 2011-2014 in the following table. (Round to the nearest dollar) Jewel Hong Kong Income Items (millions USS) 2011 2012 2013 2014 Earnings before interest and taxes (EBIT) 9.000 11,000 5 13,000 5 15,000 Less interest expenses (900) (1.100) (1.300) (1.500) Earnings before taxes (EBT) 5 8,100 $ 9.900 5 11.700 5 13500 Less Hong Kong corporate Income taxes Net Income 5 $ 6. Calculate the expected amount of the dividend to be remitted to the US parent for the years 2011-2014 in the following table (Round to the nearest dottae) Jewel Hong Kong Income Items (millions USS) 2011 2012 2013 2014 Earnings bufore interest and taxes (EBIT) 9.000 5 11.000 5 13,000 $ 15.000 Less interest expenses (1.100) (1.300) (1.500) Earnings before taxes (EBT) 0,100 $ 9.900 5 11.700S 13.500 Less Hong Kong corporate income taxes (160) (2295) 6.7235 82175 11.205 Dividend rotted to US parent Less withholding taxes 0 Net dividend remitted to US parent c. Calculate the total dendater tanchang (900) Net Incom c. Calculate the total dividend after tax including all Hong Kong and US taxes, for the years 2011-2014 in the following table Round to the nearest dollar) United States Taxation: Grossup 2011 2012 2013 2014 Net dividend remitted 5,715$ 6.9845 8.2545 9.524 Add back proportion of foreign income taxes Add back withholding taxes paid 0 Grossed up dividend for US tax purposes $ $ Theoretical US tax liability Foreign tax credits Additional U.S. tax due Aler-tax not dividend 0 d. Calculate the effective tax rate on this foreign-sourced income for the years 2011-2014 in the following table. (Round to one decimal place) 2011 2013 Total taxes paid on this income Income before tax $ 2,616 $ 6,8855 2012 3.1985 8,415 5 3,7795 9.945 $ 2014 4361 11.475 5 Effective tax rate re Data table hl 2011 2013 2014 15,000 $ 9,000 $ Jewel Hong Kong Income Items (millions US$) Earnings before interest and taxes (EBIT) Less interest expenses Earnings before taxes (EBT) 2012 11,000 $ (1,100) 9,900 $ 13,000 $ (1,300) 14 (900) 8,100 $ (1.500) 13,500 er $ 11,700 $