ACC$337-$ Roosevelt University

Chapter $8$

Omega Company has a foreign branch with the following:

In CUs Percentage

Income before income taxes $600000$

Income taxes paid to the foreign government $12000020\%$

Sales and other taxes paid to the foreign government $125000$

Omega Company must include the foreign branch income in determining its home$-$country taxable income.

The corporate income tax rate in Omega's home country $35\%$

Determine whether Omega would be better off taking a deduction or a credit for foreign taxes paid.

Deduction Credit

Foreign source income

Deduction for all foreign taxes paid

Home taxable income

Income tax rate

Income tax before FTC

FTC allowed

Net home country tax liability

FTC allowed:

$($a$)$ Actual foreign taxes paid

$($b$)$ Overall FTC limitation

Should Omega take a deduction or a credit for foreign taxes paid? Explain your reasoning.