Avon is aU.S.-based direct seller of a wide array of products. Avon markets leadingbeauty, fashion, and home products in more than 100 countries. As part of the training in its corporate treasuryoffices, it has its interns build a spreadsheet analysis of the following hypothetical subsidiaryearnings/distribution analysis. Use the tax analysis presented in the popup window for your basicstructure.

Case 1 Case 2

aForeign corporate income tax rate 28% 42%

bU.S. corporate income tax rate 35% 35%

cForeign dividend withholding tax rate 15% 0%

dU.S. ownership in foreign firm 100% 100%

eDividend payout rate of foreign firm 100% 100%

Foreign Subsidiary Tax Computation

1Taxable income of foreign subsidiary $3,200,000 $3,200,000

2Foreign corporate income tax (896,000) (1,344,000)

3Net income available for distribution $2,304,000 $1,856,000

4Retained earnings 0 0

5Distributed earnings 2,304,000 1,856,000

6Distribution to U.S. parent company 2,304,000 1,856,000

7Withholding taxes on dividends 345,600 0

8Net remittance to U.S. parent $1,958,400 $1,856,000

U.S. Corporate Tax Computation on Foreign Income

9Dividend received before withholding $2,304,000 $1,856,000

10Add back foreign deem-paid tax 896,000 1,344,000

11Grossed-up foreign dividend $3,200,000 $3,200,000

12Tentative U.S. liability 1,120,000 1,120,000

13Less credit for foreign taxes

aforeign income taxes paid (896,000) (1,344,000)

bforeign withholding taxes paid (345,600) (0)

ctotal ($1,241,600) ($1,344,000)

14Additional U.S. taxes due $0 $0

15Excess foreign tax credits 121,600 224,000

16After-tax income from foreign subsidiary $2,080,000 $2,080,000

a. What is the total taxpayment, foreign and domesticcombined, for thisincome?

b. What is the effective tax rate paid on this income by theU.S.-based parentcompany?

c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 42% and there were no withholding taxes ondividends?

d. What would be the total tax payment and effective tax rate if the income was earned by a branch of the U.S.corporation?