Question
Usco Inc. manufactures a product for $20 per unit that is sold to its affiliate, Foreignco, for $24 per unit. Foreignco sells the product
Usco Inc. manufactures a product for $20 per unit that is sold to its affiliate, Foreignco, for $24 per unit. Foreignco sells the product at $30 per unit in the local market. Assuming a U.S. tax rate of 21% and Foreignco's local income rate of 10%, the total income tax is calculated as follows: Usco Foreignco Total Sales $24 $30 $30 Cost of sales 20 24 20 Taxable $4 $6 $10 income Tax liability $0.84 (21%) $0.60 (10%) $1.44 Assume the IRS adjusts the transfer price to $26. Determine the total income tax if the tax authority of Foreignco's local government does not provide a correlative adjustment. $1.86 O $1.44 $1.66 $1.84
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