U.S.-based TaxusMinimus, Inc. (symbol TM) is reviewing the performance of its overseas operations in Serbia and the

Question:

U.S.-based TaxusMinimus, Inc. (symbol TM) is reviewing the performance of its overseas operations in Serbia and the Cayman Islands. Each foreign subsidiary earns the equivalent of $100,000 in foreign-source income before tax. Serbian corporate income and withholding tax rates are 42 percent and 5 percent, respectively. The Cayman Islands has no corporate income or withholding taxes.
a. Calculate the overall U.S. tax liability (or excess FTC) of TM.
b. If TM can shift operations so that pre-tax income is $200,000 in the Cayman Islands and zero in Serbia, what is its U.S. tax liability (or excess FTC)? Does this strategy reduce TM's overall U.S. tax liability?
c. In general, how is the attractiveness of a strategy of shifting revenues toward low-tax countries affected by the presence of implicit taxes? Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...