Case 1 Case 2 a Foreign corporate income tax rate 28 45 b U S corporate income tax rate 36 36 c Foreign dividend withholding tax rate 15 0 d U S ownership in foreign firm 100 100 e Dividend payout rate of foreign firm 100 100 Foreign Subsidiary Tax Computation 1 Taxable income of foreign subsidiary $3,500,000 $3,500,000 2 Foreign corporate income tax (980,000) (1,575,000) 3 Net income available for distribution $2,520,000 $1,925,000 4 Retained earnings 0 0 5 Distributed earnings 2520000 1925000 6 Distribution to U S parent company 2520000 1925000 7 Withholding taxes on dividends 378000 0 8 Net remittance to U S parent $2,142,000 $1,925,000 U S Corporate Tax Computation on Foreign Income 9 Dividend received before withholding $2,520,000 $1,925,000 10 Add back foreign deem paid tax 980000 1575000 11 Grossed up foreign dividend $3,500,000 $3,500,000 12 Tentative U S liability 1260000 1260000 13 Less credit for foreign taxes a foreign income taxes paid (980,000) (1,575,000) b foreign withholding taxes paid (378,000) (0) c total ($1,358,000) ($1,575,000) 14 Additional U S taxes due $0 $0 15 Excess foreign tax credits 98000 315000 16 After tax income from foreign subsidiary $2,240,000 $2,240,000 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, 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 45 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 a What is the total tax payment, foreign and domestic combined, for this income $(Round to the nearest dollar )

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Case 1 Case 2 a Foreign corporate income tax rate 28% 45% b U.S. corporate income tax rate 36% 36% c Foreign dividend withholding tax

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	Case 1	Case 2
a Foreign corporate income tax rate	28%	45%
b U.S. corporate income tax rate	36%	36%
c Foreign dividend withholding tax rate	15%	0%
d U.S. ownership in foreign firm	100%	100%
e Dividend payout rate of foreign firm	100%	100%

Foreign Subsidiary Tax Computation
1 Taxable income of foreign subsidiary	$3,500,000	$3,500,000
2 Foreign corporate income tax	(980,000)	(1,575,000)
3 Net income available for distribution	$2,520,000	$1,925,000
4 Retained earnings	0	0
5 Distributed earnings	2520000	1925000
6 Distribution to U.S. parent company	2520000	1925000
7 Withholding taxes on dividends	378000	0
8 Net remittance to U.S. parent	$2,142,000	$1,925,000

U.S. Corporate Tax Computation on Foreign Income
9 Dividend received before withholding	$2,520,000	$1,925,000
10 Add back foreign deem-paid tax	980000	1575000
11 Grossed-up foreign dividend	$3,500,000	$3,500,000
12 Tentative U.S. liability	1260000	1260000
13 Less credit for foreign taxes
a foreign income taxes paid	(980,000)	(1,575,000)
b foreign withholding taxes paid	(378,000)	(0)
c total	($1,358,000)	($1,575,000)
14 Additional U.S. taxes due	$0	$0
15 Excess foreign tax credits	98000	315000
16 After-tax income from foreign subsidiary	$2,240,000	$2,240,000

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, 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 45% 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? a. What is the total tax payment, foreign and domestic combined, for this income? $(Round to the nearest dollar.)