Gamboa's Tax Averaging, Gamboa, Incorporated, is a relatively new US-based retailer of specialty fruits and vegetables. The firm is vertically integrated with fruit and vegetable-sourcing subsidiaries in Central America, and distribution outlets throughout the southeastern and northeastern regions of the United States Gamboa's two Central American subsidiaries are in Belice and Costa Rica Maria Gamboa, the daughter of the firm's founder is being groomed to take over the firm's financial management in the near future Like many firms of Gamboa's sice, it has not possessed a very high degree of sophistication in financial management simply out of time and cont considerations. Maria, however, has recently finished het MBA and is now attempting to put some specialized knowledge of US taxation practices to work to save Gamboa money Her first concern is tax averaging for foreign tax liabilities arising from the two Central American subsidiaries As shown in the popup window. m Costa Rican operations are slightly more profitable than Belize, which is particularly good since Costa Rica is a relatively Belize has a higher corporate income tax rate, 40%, and imposes a 10% withholding tax on all dividends distributed to foreign investors. The current US low tax country Costa Rican corporate taxes are a flat 30%, and there are no withholding taxes imposed on dividends paid by foreign firms with operations there corporate income tax rate is 35% a. I Maria Gamboa assumes a 60% payout rate from each subsidiary, what are the additional taxes due on foreign-sourced income from Belize and Costa Rica individually? How much in additional US taxes would be due if Maria averaged the tax credits/liabilities of the two units? 5. Keeping the payout rate from the Belize subsidiary at 60%, how should Maria change the payout rate of the Costa Rican subsidiary in order to most efficiently manage her total foreign tax bui? c. What is the minimum effective tax rate that Maria can achieve on her foreign-sourced income? # Maria Gamboa assumes a 60% payout rate from each subsidiary, calculate the additional taxes due or excess foreign tax credits on foreign-sourced income from Costa Rica individually in the following table: (Round to the nearest dollar) Subsidiary Income Statement Belize Costa Rica Combined Earnings before taxes $ 2.300.000 Less corporate income taxes Net Income Distributed earnings Less withholding taxes on dividends Net dividend remitted to US parent $ U.S. Tax Calculation Net dividend remitted Withholding income taxes Proportion of foreign income taxes Grossed-up dividend $ Theortical US tur iability Foreign tax credits S $ Additional US tax due Excurs foreign tax credits Calculate the additional U.S. tare due if Maria averaged the tax creditsWabilitles of the two units in the following table and the martuar) Subsidiary Income Statement Costa Rica Combined Earings before taxes 5 1700 000 $ 2.300.000 Les corporate income taxes (680,000) (690 000) 1 020,000 5 1,610,000 Belize Not income 5 Excess foreign tax credits Calculate the additional US taxes duelt Maria averaged the tax credits/abilities of the two units in the following table Pound to the marast dollar) Subsidiary Income Statement Belize Costa Rica Combined Earnings before taxes 5 1,700,000 $ 2.300.000 Less corporate income taxes (680.000) (690,000) Not income 1,020,000 5 1,610,000 Distributed earnings 612,000 966 000 Less withholding taxes on dividends (61.200) Net dividend remitted to US parent 550,000 966,000 S 0 966.000 5 U.S. Tax Calculation Net dividend remitted Withholding income taxes Proportion of formign income taxes Grossed-up dividend 0 550 000 $ 61,200 400.000 1,020 000 $ 414 000 1380,000 $ $ Theoretical US tax liability 357,000 5 483.000 5 21 ny c. What is the minimum effective tax rate that Maria can achieve on her foreign-sourced Income? $ U.S. Tax Calculation Net dividend remited Withholding income taxes Proportion of foreign income taxes Grossed up dividend 550.800 $ 61200 408.000 1,020,000 $ 966,000 5 0 414.000 1 380.000 5 $ Theoretical U.S. tax liability Foreign tax credits $ $ 357,000 $ 469 2005 483.000 $ 414,000 5 69,000 $ 112 200 $ Additional U.S. tax due Excess foreign tax credits b. Keeping the payout rate from the Belize subsidiary at 60% how should Maria change the payout rate of the Costa Rican subsidiary in order to ment ucurity manage her total foreign tax ba? (Select from the drop-down menu) Maria should payout rate for the Costa Rican subsidiary to equate the cross-credits with the US parent company level and no ational U.S. taxes are due on the remittance and repatriation c. What is the minimum effective tax rate that Marla can achieve on her foreign-sourced income? (Select from the drop-down manu) The minimum effective tax rate Maria can reach on her foreign-sourced income, assuming something is repatriated from abroad, is Data table Earnings before taxes Corporate income tax rate Dividend withholding tax rate Belize $1,700,000 40% 10% Costa Rica $2,300,000 30% 0% Print Done Gamboa's Tax Averaging, Gamboa, Incorporated, is a relatively new US-based retailer of specialty fruits and vegetables. The firm is vertically integrated with fruit and vegetable-sourcing subsidiaries in Central America, and distribution outlets throughout the southeastern and northeastern regions of the United States Gamboa's two Central American subsidiaries are in Belice and Costa Rica Maria Gamboa, the daughter of the firm's founder is being groomed to take over the firm's financial management in the near future Like many firms of Gamboa's sice, it has not possessed a very high degree of sophistication in financial management simply out of time and cont considerations. Maria, however, has recently finished het MBA and is now attempting to put some specialized knowledge of US taxation practices to work to save Gamboa money Her first concern is tax averaging for foreign tax liabilities arising from the two Central American subsidiaries As shown in the popup window. m Costa Rican operations are slightly more profitable than Belize, which is particularly good since Costa Rica is a relatively Belize has a higher corporate income tax rate, 40%, and imposes a 10% withholding tax on all dividends distributed to foreign investors. The current US low tax country Costa Rican corporate taxes are a flat 30%, and there are no withholding taxes imposed on dividends paid by foreign firms with operations there corporate income tax rate is 35% a. I Maria Gamboa assumes a 60% payout rate from each subsidiary, what are the additional taxes due on foreign-sourced income from Belize and Costa Rica individually? How much in additional US taxes would be due if Maria averaged the tax credits/liabilities of the two units? 5. Keeping the payout rate from the Belize subsidiary at 60%, how should Maria change the payout rate of the Costa Rican subsidiary in order to most efficiently manage her total foreign tax bui? c. What is the minimum effective tax rate that Maria can achieve on her foreign-sourced income? # Maria Gamboa assumes a 60% payout rate from each subsidiary, calculate the additional taxes due or excess foreign tax credits on foreign-sourced income from Costa Rica individually in the following table: (Round to the nearest dollar) Subsidiary Income Statement Belize Costa Rica Combined Earnings before taxes $ 2.300.000 Less corporate income taxes Net Income Distributed earnings Less withholding taxes on dividends Net dividend remitted to US parent $ U.S. Tax Calculation Net dividend remitted Withholding income taxes Proportion of foreign income taxes Grossed-up dividend $ Theortical US tur iability Foreign tax credits S $ Additional US tax due Excurs foreign tax credits Calculate the additional U.S. tare due if Maria averaged the tax creditsWabilitles of the two units in the following table and the martuar) Subsidiary Income Statement Costa Rica Combined Earings before taxes 5 1700 000 $ 2.300.000 Les corporate income taxes (680,000) (690 000) 1 020,000 5 1,610,000 Belize Not income 5 Excess foreign tax credits Calculate the additional US taxes duelt Maria averaged the tax credits/abilities of the two units in the following table Pound to the marast dollar) Subsidiary Income Statement Belize Costa Rica Combined Earnings before taxes 5 1,700,000 $ 2.300.000 Less corporate income taxes (680.000) (690,000) Not income 1,020,000 5 1,610,000 Distributed earnings 612,000 966 000 Less withholding taxes on dividends (61.200) Net dividend remitted to US parent 550,000 966,000 S 0 966.000 5 U.S. Tax Calculation Net dividend remitted Withholding income taxes Proportion of formign income taxes Grossed-up dividend 0 550 000 $ 61,200 400.000 1,020 000 $ 414 000 1380,000 $ $ Theoretical US tax liability 357,000 5 483.000 5 21 ny c. What is the minimum effective tax rate that Maria can achieve on her foreign-sourced Income? $ U.S. Tax Calculation Net dividend remited Withholding income taxes Proportion of foreign income taxes Grossed up dividend 550.800 $ 61200 408.000 1,020,000 $ 966,000 5 0 414.000 1 380.000 5 $ Theoretical U.S. tax liability Foreign tax credits $ $ 357,000 $ 469 2005 483.000 $ 414,000 5 69,000 $ 112 200 $ Additional U.S. tax due Excess foreign tax credits b. Keeping the payout rate from the Belize subsidiary at 60% how should Maria change the payout rate of the Costa Rican subsidiary in order to ment ucurity manage her total foreign tax ba? (Select from the drop-down menu) Maria should payout rate for the Costa Rican subsidiary to equate the cross-credits with the US parent company level and no ational U.S. taxes are due on the remittance and repatriation c. What is the minimum effective tax rate that Marla can achieve on her foreign-sourced income? (Select from the drop-down manu) The minimum effective tax rate Maria can reach on her foreign-sourced income, assuming something is repatriated from abroad, is Data table Earnings before taxes Corporate income tax rate Dividend withholding tax rate Belize $1,700,000 40% 10% Costa Rica $2,300,000 30% 0% Print Done
