Question
Trixie Company has a foreign branch in Switzerland that earns income before income taxes of $500,000. Income taxes paid to the Swiss government are $150,000
Trixie Company has a foreign branch in Switzerland that earns income before income taxes of $500,000. Income taxes paid to the Swiss government are $150,000 or 30%. However, Switzerland is known for their extremely high local taxes - as such, Trixie Company's branch paid $250,000 to the Swiss government for sales and other local taxes. Trixie Company must include the $500,000 of Foreign branch income in determining its home country taxable income. In determining its taxable income, Trixie Company 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 Trixie's home country is 40%.
Determine whether Trixie company would be better off taking a deduction or a credit for foreign taxes paid (FTC). Please show your work.
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