Widgets Plus is a wholly owned German subsidiary that manufactures light weight plastic frames for several toy manufacturing companies. The company operates in the UK and generated earnings before tax (EBT) of 4,438,000.

The UK corporate income tax rate is 27%, and the German corporate income tax rate is 29%.

Required:

1. If Widgets Plus repatriates 100% of its net UK income to Germany, calculate the effective tax rate assuming no foreign tax credits or withholding taxes? (3 marks)
2. What is the effective tax rate if foreign tax credits are available? (2 marks)