Wheelco, a foreign corporation, manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in the United States through Wheely, a wholly-owned U.S. sales subsidiary that derives all of its income from U.S. business operations. Wheelco also has a creditor interest in Wheely, such that Wheely's debt to equity ratio is 3 to 1, and Wheely makes annual interest payments of $60 million to Wheelco. The results from Wheely's first year of operations are as follows:
Sales ................................................................. $180 million
Interest income ..................................................... $6 million
Interest expense (paid to Wheelco) .................. ($60 million)
Depreciation expense ....................................... ($30 million)
Other operating expenses ................................. ($81 million)
Taxable income .................................................. $15 million
Assume the U.S. corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelco's interest income from U.S. withholding tax. Compute Wheely's interest expense deduction.