Question
ailor Johnson, a U.S. maker of fine menswear, has a subsidiary in Ethiopia. This year, the subsidiary reported and repatriated earnings before interest and taxes
ailor Johnson, a U.S. maker of fine menswear, has a subsidiary in Ethiopia. This year, the subsidiary reported and repatriated earnings before interest and taxes (EBIT) of 100 million Ethiopian birrs. Assume the current exchange rate is 8 birr/$ or S1= $ 0.125/birr. The Ethiopian tax rate on this activity is 25%. tax law in the united states requires Tailor Johnson to pay taxes on the Ethiopian earnings at the same rate as on profits earned in the United States, which is currently 45%. However, the United States gives a full tax credit for foreign taxes paid up to the amount of the U.S. tax liability. What is Tailor Johnson's U.S. tax liability on its Ethiopian subsidiary?
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