l7. Lionais Company has a foreign branch that earns income before income taxes of ' 500,000 currency units (CU). Income taxes paid to the foreign government are 2_ CU 150,000 (30 pgrcent). Sales and other taxes paid to the foreign government are CU 50,000. Eionais Company must include the CU 500,000 of foreign branch . I'lr-'E' . . . . . . . income in determining its home country taxable income. In determmlng its taxable income, nggavivg can choose between taking a deduction for all foreign taxes paid or a credit only for foreign income taxes paid. The corporate income tax rate in Lionais' home country is 40 percent. cf Required: 5 Determine whether \\Igionais would be better off taking a deduction or credit for foreign taxes paid. 17. Lionais Company Calculation of Home County Tax Liablllg Deduction Credit Foreign source income \\ 500,000 \\ 500,000 Deduction for all foreign taxes paid 250,000 Q Home taxable income 250,000 500,000 Income tax rate 40% 40% Income tax before FTC 100,000 200,000 FTC allowed* Q 150,000 Net home country tax liability m m * Calculation of FTC allowed (a) Actual foreign taxes paid 500.000 0.3 (b) Overali FTC limitation 500,000 0.4 200 000 FTC allowed -- lesser of (a) and (b) 150,000 Lionais would be better off taking the foreign tax credit