A USA company (Owner Company) owns 100% of a company in Freedonia and 100% of a company in Canaan. Assume all companies are corporations for USA tax purposes. Assume no tax treaties. Assume both Freedonia and Canaan have low tax rates when compared to the USA. Assume no GILTI or FDII issues.
The company in Freedonia grows apples and sells them to the company in Canaan. The company in Canaan sells 50% to residents of Canaan and 50% to consumers in countries other than Freedonia.
Discuss the tax result to the USA Owner Company. (does it qualify for tax exemptions? are they taxed currently?)
PART B –
Same basic facts only this time the company in Freedonia does not grow the apples but arranges for the company in Canaan to purchase them directly from the growers of the apples, all located in Freedonia. Thus, the company in Freedonia is acting as a purchasing agent for the company in Canaan. For this effort, the company in Freedonia earns a commission from the company in Canaan.
Discuss the tax result to the USA Owner Company.