Question
Rainier Corporation, a U.S. corporation, manufactures and sells quidgets in the United States, Europe and the Middle East. Rainier conducts its operations in Europe and
Rainier Corporation, a U.S. corporation, manufactures and sells quidgets in the United States, Europe and the Middle East. Rainier conducts its operations in Europe and the Middle East through a German GmbH, which the company elects to treat as a branch, i.e. DRE, for U.S. tax purposes. Rainier also licenses the rights to manufacture quidgets to an unrelated company in China. During the current year, Rainier paid the following foreign taxes, translated into U.S. dollars at the appropriate exchange rate:
National income taxes in Germany $1,500,000
City of Munich income taxes $ 200,000
Value added tax to German government $ 400,000
Payroll tax to the German government (employers share of
social insurance contributions) $ 300,000
Withholding tax on royalties received from China $ 100,000 Saudi Arabian tax on what is actually a royalty $ 75,000
Yemen income tax $ 50,000
What amount of creditable foreign taxes does Rainier incur?
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