Assume that MNC Company (a U.S. tax payer) has four subsidiaries located in four different foreign countries. The country location, MNCs percentage ownership, nature of activity, and income before tax for each subsidiary; the income and withholding tax rates in the host countries; and the dividend paid by each subsidiary to MNC are summarized as follows:

Foreign Entity	A	B	C	D
Country	Germany	Zambia	Hongkong	Cayman Is.
Legal form	Subsidiary	Subsidiary	Subsidiary	Subsidiary
MNCs ownership	100%	70%	60%	80%
Activity	Manufacturing	Manufacturing	Mining	Investment
Before-tax income	$100,000	$120,000	$150,000	$200,000
Income-tax rate	30%	35%	16.5%	0%
After-tax income	$70,000	$78,000	$125,250	$200,000
Gross-dividend paid to MNC	$70,000	$40,000	$40,000	$0
Withholding tax rate	5%	10%	0%	0%
Net dividend received by MNC	$66,500	$36,000	$40,000	$0

Determine 1) the amount of U.S. taxable income for each Entity A-D; 2) the foreign tax credit allowed in the United states, first by basket and then in total; 3) The net U.S. tax liability. Please answer the questions by filling in the following white blanks labelled with numbers, e.g. (1), (2), , (31).

Step 1: Determine whether the foreign operation is a branch or subsidiary.

All the foreign operations are subsidiaries.

Step 2: Determine whether the subsidiaries are CFCs or not.

Yes, all the foreign operations are CFCs.

Step 3: Whether the subsidiaries are located in tax havens or not.

Subsidiary location	Corporate income tax rate	Withholding tax rate on dividend	Effective tax rate on dividends	Tax haven or not (Yes or No)
Germany	30%	5%	(1)	(5)
Zambia	35%	10%	(2)	(6)
Hongkong	16.5%	0%	(3)	(7)
Cayman Is.	0%	0%	(4)	(8)

Step 4Whether the subsidiaries in tax haven have any subpart F income.

Subsidiary location	Have subpart F income or not (Yes or No)
Germany
Zambia
Hongkong	(9)
Cayman Is.	(10)

Step 5Determine the grossed-up dividend for the subsidiaries that do not have subpart F income larger than 5%.

Subsidiary location	Net dividend	Corporate income tax rate	Withholding tax rate on dividend	Grossed-up dividend
Germany	$66,500	30%	5%	(11)
Zambia	$36,000	35%	10%	(12)
Hongkong	$40,000	16.5%	0%	(13)

Step 6: Determine foreign tax credits and U.S. tax liability by baskets

Subsidiary location	Germany	Zambia	Hongkong
Grossed-up dividend	(14)	(15)	(16)
Net amount received by MNC	$66,500	$36,000	$40,000
Taxes paid to foreign government	(17)	(18)	(19)

	Passive income	General Income
U. S. taxable income	(20)	(21)
U.S. income tax before FTC (35%)	(22)	(23)
Less: FTC
Taxes paid to foreign government	(24)	(25)
Overall FTC limitation	(26)	(27)
FTC allowed lesser of (a) and (b)	(28)	(29)
U.S. tax liability	(30)	(31)