Avon's Foreign-Source Income. Avon is a U.S.-based direct seller of a wide array of products. Avon markets leading beauty, fashion, and home products in more than 100 countries. As part of the training in its corporate treasury offices, it has its interns build a spreadsheet analysis of the following hypothetical subsidiary earnings/distribution analysis. Use the tax analysis presented in the popup window for your basic structure, B Case 1 28% 36% 15% 100% 100% Case 2 40% 36% 0% 100% 100% A 1 2 a Foreign corporate income tax rate 3 b U.S. corporate income tax rate c Foreign dividend withholding tax rate 5 d U.S. ownership in foreign firm 6 e Dividend payout rate of foreign firm 7 8 Foreign Subsidiary Tax Computation 9 1 Taxable income of foreign subsidiary 10 2 Foreign corporate income tax 11 3 Net income available for distribution 12 4 Retained earnings 13 5 Distributed earnings 14 6 Distribution to U.S. parent company 15 7 Withholding taxes on dividends 16 8 Net remittance to U.S. parent 17 18 U.S. Corporate Tax Computation on Foreign Income 19 9 Dividend received before withholding 20 10 Add back foreign deem-paid tax 21 11 Grossed-up foreign dividend 22 12 Tentative U.S. liability 23 13 Less credit for foreign taxes 24 a foreign income taxes paid 25 b foreign withholding taxes paid 26 c total 27 14 Additional U.S. taxes due 28 15 Excess foreign tax credits 29 16 After-tax income from foreign subsidiary $3,500,000 $3,500,000 (980,000) (1,400,000) $2,520,000 $2,100,000 0 0 2520000 2100000 2520000 2100000 378000 0 $2,142,000 $2,100,000 $2,520,000 $2,100,000 980000 1400000 $3,500,000 $3,500,000 1260000 1260000 (980,000) (1,400,000) (378,000) (0) ($1,358,000) ($1,400,000) $0 $0 980001 140000 $2,240,000 $2,240,000 20 a. What is the total tax payment, foreign and domestic combined, for this income? b. What is the effective tax rate paid on this income by the U.S.-based parent company? c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 40% and there were no withholding taxes on dividends? c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 40% and there were no withholding taxes on dividends? 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? Avon's Foreign-Source Income. Avon is a U.S.-based direct seller of a wide array of products. Avon markets leading beauty, fashion, and home products in more than 100 countries. As part of the training in its corporate treasury offices, it has its interns build a spreadsheet analysis of the following hypothetical subsidiary earnings/distribution analysis. Use the tax analysis presented in the popup window for your basic structure, B Case 1 28% 36% 15% 100% 100% Case 2 40% 36% 0% 100% 100% A 1 2 a Foreign corporate income tax rate 3 b U.S. corporate income tax rate c Foreign dividend withholding tax rate 5 d U.S. ownership in foreign firm 6 e Dividend payout rate of foreign firm 7 8 Foreign Subsidiary Tax Computation 9 1 Taxable income of foreign subsidiary 10 2 Foreign corporate income tax 11 3 Net income available for distribution 12 4 Retained earnings 13 5 Distributed earnings 14 6 Distribution to U.S. parent company 15 7 Withholding taxes on dividends 16 8 Net remittance to U.S. parent 17 18 U.S. Corporate Tax Computation on Foreign Income 19 9 Dividend received before withholding 20 10 Add back foreign deem-paid tax 21 11 Grossed-up foreign dividend 22 12 Tentative U.S. liability 23 13 Less credit for foreign taxes 24 a foreign income taxes paid 25 b foreign withholding taxes paid 26 c total 27 14 Additional U.S. taxes due 28 15 Excess foreign tax credits 29 16 After-tax income from foreign subsidiary $3,500,000 $3,500,000 (980,000) (1,400,000) $2,520,000 $2,100,000 0 0 2520000 2100000 2520000 2100000 378000 0 $2,142,000 $2,100,000 $2,520,000 $2,100,000 980000 1400000 $3,500,000 $3,500,000 1260000 1260000 (980,000) (1,400,000) (378,000) (0) ($1,358,000) ($1,400,000) $0 $0 980001 140000 $2,240,000 $2,240,000 20 a. What is the total tax payment, foreign and domestic combined, for this income? b. What is the effective tax rate paid on this income by the U.S.-based parent company? c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 40% and there were no withholding taxes on dividends? c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 40% and there were no withholding taxes on dividends? 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
