Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly-owned foreign subsidiaries.
Entity Country Bahrain B Bermuda C Hong Kong D Hungary E Ireland F Malaysia Mexico H Switzerland Legal Form Activity Income before Taxes Income Tax Rate Dividend Withholding Tax Rate Net Dividend Received by Parent Branch Sales $ 1,000,000.00 0% 0% $ 1,000,000 Corporation Sales $ 8,000,000.00 0% 0% $ 800,000 Corporation Manufacturing $ 10,000,000.00 16.5% 0% $ 8,350,000 Corporation Sales $ 10,000,000.00 9% 0% $ 9,100,000 Corporation Investment $ 2,000,000.00 12.5% 0% $ 1,750,000 Branch Manufacturing $ 10,000,000.00 24% 0% $ 7,600,000 Corporation Manufacturing $ 5,000,000.00 30% 5% $ 3,325,000 Corporation Service $ 500,000.00 17% 35% $ 269,750 Additional Information 1) Entities C, F, and G manufacture products that are sold in their home countries as well as to sister entities within the WUC group. 2) Entity A purchases finished products from Entity F and then sells them throughout the Middle East. Only 5% of A's income is generated from sales to customers in Bahrain; 95% of A's income is from sales to foreign customers. 3) Entity B purchases finished products from Entity G and sells them throughout North and South America. Only 1% of B's income is from sales to customers in Bermuda; 99% of B's income is from sales to foreign customers. 4) Entity D purchases finished products from Entity Cand then sells them throughout Europe. Only 40% of D's income is generated from sales to customers in Hungary; 60% of D's income is from sales to foreign customers. 5) Entity E makes passive investments in stocks and bonds in European financial markets. All of E's income is derived from dividends and interests. 6) Entity H provides accounting and other management services to WUC's other foreign operations. All of H's income is derived from providing services to sister companies within the WUC group. 1) Determine the amount of U.S. taxable income for each entity (A, B, C, D, E, F, G, and H). 2) Calculate the foreign tax credit allowed in the United States, first by foregin tax credit basket and then in total. 3) Determine the amount of U.S. Tax liability on foreign source income. 4) Determine any excess foreign tax credits and identify by basket. Entity Country Bahrain B Bermuda C Hong Kong D Hungary E Ireland F Malaysia Mexico H Switzerland Legal Form Activity Income before Taxes Income Tax Rate Dividend Withholding Tax Rate Net Dividend Received by Parent Branch Sales $ 1,000,000.00 0% 0% $ 1,000,000 Corporation Sales $ 8,000,000.00 0% 0% $ 800,000 Corporation Manufacturing $ 10,000,000.00 16.5% 0% $ 8,350,000 Corporation Sales $ 10,000,000.00 9% 0% $ 9,100,000 Corporation Investment $ 2,000,000.00 12.5% 0% $ 1,750,000 Branch Manufacturing $ 10,000,000.00 24% 0% $ 7,600,000 Corporation Manufacturing $ 5,000,000.00 30% 5% $ 3,325,000 Corporation Service $ 500,000.00 17% 35% $ 269,750 Additional Information 1) Entities C, F, and G manufacture products that are sold in their home countries as well as to sister entities within the WUC group. 2) Entity A purchases finished products from Entity F and then sells them throughout the Middle East. Only 5% of A's income is generated from sales to customers in Bahrain; 95% of A's income is from sales to foreign customers. 3) Entity B purchases finished products from Entity G and sells them throughout North and South America. Only 1% of B's income is from sales to customers in Bermuda; 99% of B's income is from sales to foreign customers. 4) Entity D purchases finished products from Entity Cand then sells them throughout Europe. Only 40% of D's income is generated from sales to customers in Hungary; 60% of D's income is from sales to foreign customers. 5) Entity E makes passive investments in stocks and bonds in European financial markets. All of E's income is derived from dividends and interests. 6) Entity H provides accounting and other management services to WUC's other foreign operations. All of H's income is derived from providing services to sister companies within the WUC group. 1) Determine the amount of U.S. taxable income for each entity (A, B, C, D, E, F, G, and H). 2) Calculate the foreign tax credit allowed in the United States, first by foregin tax credit basket and then in total. 3) Determine the amount of U.S. Tax liability on foreign source income. 4) Determine any excess foreign tax credits and identify by basket
