Foreign Tax Credit

DC, a Delaware corporation, purchases goods manufactured in the United States by several related corporations and sells them in the United States and countries X and Y.  The sales in country X are made through a branch of DC in country X, and the country Y sales are made by an unrelated country Y corporation functioning as DC’s independent sales agent.  For the current taxable year, DC’s U.S. taxable income (determined without regard to foreign income taxes) is $1,000, of which $,100 is from the sales through the country X branch, $100 is from the sales to customers in country Y and $800 is from sales in the U.S.  DC’s U.S. tax before credit for foreign income taxes is $350.  Its country X tax for the year is $40.  It pays no country Y tax because it has no permanent establishment in that country.  What is DC’s U.S. tax after the foreign tax credit?  Assume alternatively:

A-    Title to all goods sold in countries X and Y passes to the buyers when the goods are delivered to a common carrier in Seattle.

B-    DC ships all goods to customers in countries X and Y from Seattle, but the sales contracts specify that title passes to these customers upon delivery in countries X and Y.

Question 2

DC, a Delaware corporation, owns 5 percent of the stock of FC, a country X corporation that is not engaged in a U.S. Trade/Business and whose other shareholders are foreign persons.  DC also holds debt obligations issued by FC.  During the current year, FC earns $2000 (which is subject to $250 of foreign tax); DC receives $100 of dividends and $100 of interest from FC.  Country X tax of $20 is withheld from each of these items of income.  DC also has $1,000 of taxable sales income from branch operations in country X, and it pays $400 of country X tax on this income.  DC has no other income than the items mentioned.  If DC’s precredit U.S. tax is 35% of taxable income, what is its foreign tax credit for the year?


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