Does a state have the authority to require a U.S.-basedmultinational corporation to compute its state taxable income on aworldwide combined reporting basis? What about a foreign-basedmultinational corporation? Explain.

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Beverley SmithLv2

28 Sep 2019

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Dixie Inc., a Tennessee corporation, conducts business through branch offices in the United States, Mexico, and Canada. Dixie owns 100 percent of the stock of two foreign subsidiaries, Dix-Col Inc. and Dix-Per Inc., through which it conducts its South American business. This year, Dixie recognized the following items of taxable income:

U.S. source income from domestic branch $ 5,170,000

Foreign source income from foreign branches 1,173,800

Cash dividends received from Dix-Col 312,000

Cash dividends received from Dix-Per 301,500

During the year, Dixie paid $217,000 income tax to Mexico and $335,000 income tax to Canada. It paid no direct income taxes to any other foreign country. However, Dix-Col paid a 20 percent income tax to the country of Colombia, and Dix-Per paid a 37 percent income tax to the country of Peru. U.S. tax rate is 34 percent.

a. Compute Dixieâs taxable income. (Round your intermediate calculations to the nearest whole dollar.)

b. Compute Dixieâs U.S. tax. (Do not round any intermediate division. Round your intermediate calculations to the nearest whole dollar.)

peachspider185

Waco Leather Inc., a U.S. corporation, reported total taxableincome of $5.1 million. Taxable income included $2 million offoreign source taxable income from the companyâs branch operationsin Mexico. All of the branch income is general category income.Waco paid Mexican income taxes of $500,000 on its branchincome.

Compute Wacoâs allowable foreign tax credit. Assume a U.S.corporate tax rate of 34 percent. (Do not roundintermediate computations. Enter your answers in dollars and not inmillions of dollars.)

Foreigntax credit

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Spartan Corporation, a U.S. corporation, reported $5.4 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income at 25 percent, and the United States taxes corporate income at 35 percent. (Enter your answers in dollars and not in millions of dollars.)

a. If the United States provided no mechanism for mitigating double taxation, what would be the total tax (U.S. and foreign) on the $5.4 million of branch profits?

b. Assume the United States allows U.S. corporations to exclude foreign source income from U.S. taxation. What would be the total tax on the $5.4 million of branch profits?

c. Assume the United States allows U.S. corporations to claim a deduction for foreign income taxes. What would be the total tax on the $5.4 million of branch profits?

d-1. Assume the United States allows U.S. corporations to claim a credit for foreign income taxes paid on foreign source income. What would be the total tax on the $5.4 million of branch profits?

d-2. Assume the United States allows U.S. corporations to claim a refundable credit for foreign income taxes paid on foreign source income. What would be your answer if Spartania taxed branch profits at 40 percent?

What is the total tax for a-d2?

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