This question comes from textbook: Taxation of International Transactions Fourth Edition
Page 61,Looking for 1-5
Who Is TAXED ON WORLDWIDE INCOME? SEC F [11230] PROBLEM U.S. Cleanliness, Inc. ("Usclean") is a large publicly held Delaware ration, which is traded on the New York Stock Exchange and which and operates laundries throughout the United States. Campania Cleanli- es Ltd. ("Camclean") is a wholly owned subsidiary of Usclean, organized under the laws of Campania and engaged in owning and operating dry Jeaning establishments throughout Campania, in several countries of Latin America and, in a small way, in the United States. Camclean has income from the following sources: 1. Interest on a loan made to a New York corporation engaged in business solely in the United States (this interest is unrelated to the business referred to in paragraph 9 below). 2. Royalties from an independent licensee in the United States that has a nonexclusive license under a U.S. patent owned by Camclean (unrelated to the business referred to in paragraph 9 below). 3. Dividends on 1,000 shares of General Motors stock owned by Camclean as a portfolio investment (unrelated to the business referred to in paragraph 9 below). 4. Capital gain on the sale of the 1,000 shares of General Motors stock referred to in paragraph 3 above and unrelated to the business referred to in paragraph 9 below. 5. Capital gain from the sale of a U.S. patent owned by Camclean for annual payments for ten years equal to five percent of the annual net sales of the patented product. 6. Conduct of the dry cleaning business in Campania. 7. Conduct of the dry cleaning business in several Latin American countries. 8. Dividends from a U.S. subsidiary that is engaged in the business of selling dry cleaning solvents in the United States. 9. Conduct of the dry cleaning business in the United States through an unincorporated branch. Which of the above items of income could be taxed by the United States under international law? In each case, what would be the basis under international law for the exercise of jurisdiction to tax? Which of the items should be taxable in the United States? Which items should be taxed at the 30-percent flat rate on gross income? Which should be taxed at the regular corporate rate on net income? The source-of-income rules actually used by the United States are discussed in Chapter 2. For this problem assume that the sources of the income items are as follows: Items 1, 2, 3, 5, 8 and 9: United States; Items 4 and 6: Campania; Item 7: Latin America. 11230 Who Is TAXED ON WORLDWIDE INCOME? SEC F [11230] PROBLEM U.S. Cleanliness, Inc. ("Usclean") is a large publicly held Delaware ration, which is traded on the New York Stock Exchange and which and operates laundries throughout the United States. Campania Cleanli- es Ltd. ("Camclean") is a wholly owned subsidiary of Usclean, organized under the laws of Campania and engaged in owning and operating dry Jeaning establishments throughout Campania, in several countries of Latin America and, in a small way, in the United States. Camclean has income from the following sources: 1. Interest on a loan made to a New York corporation engaged in business solely in the United States (this interest is unrelated to the business referred to in paragraph 9 below). 2. Royalties from an independent licensee in the United States that has a nonexclusive license under a U.S. patent owned by Camclean (unrelated to the business referred to in paragraph 9 below). 3. Dividends on 1,000 shares of General Motors stock owned by Camclean as a portfolio investment (unrelated to the business referred to in paragraph 9 below). 4. Capital gain on the sale of the 1,000 shares of General Motors stock referred to in paragraph 3 above and unrelated to the business referred to in paragraph 9 below. 5. Capital gain from the sale of a U.S. patent owned by Camclean for annual payments for ten years equal to five percent of the annual net sales of the patented product. 6. Conduct of the dry cleaning business in Campania. 7. Conduct of the dry cleaning business in several Latin American countries. 8. Dividends from a U.S. subsidiary that is engaged in the business of selling dry cleaning solvents in the United States. 9. Conduct of the dry cleaning business in the United States through an unincorporated branch. Which of the above items of income could be taxed by the United States under international law? In each case, what would be the basis under international law for the exercise of jurisdiction to tax? Which of the items should be taxable in the United States? Which items should be taxed at the 30-percent flat rate on gross income? Which should be taxed at the regular corporate rate on net income? The source-of-income rules actually used by the United States are discussed in Chapter 2. For this problem assume that the sources of the income items are as follows: Items 1, 2, 3, 5, 8 and 9: United States; Items 4 and 6: Campania; Item 7: Latin America. 11230
