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Exam 9: Taxation of International Transactions

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Question 1

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Discuss the primary purposes of income tax treaties.

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The primary purpose of an income tax tre...

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Question 2

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Which of the following statements regarding the U.S. taxation of non-U.S. persons is true?

A) A non­U.S. person's effectively connected U.S. business income is taxed by the U.S. only if it is portfolio income.
B) A non­U.S. person's effectively connected U.S. business income is subject to U.S. income taxation.
C) A non-U.S. person may earn income from selling U.S. real property without incurring any U.S. income tax.
D) A non-U.S. person must spend at least 183 days in the United States before any effectively connected income is subject to U.S. taxation.

E) B) and D)
F) A) and B)

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Question 3

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The sourcing rules of Federal income taxation apply to deductions as well as to income items.

Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer. She spends 50 days in the United States and earns $20,000 for a two-month period. This amount is attributable to 40 U.S. working days and 10 non-U.S. working days. Her employer does not have a U.S. trade or business and Liang spends no other time in the U.S. for the tax year. Liang's U.S.­source taxable income is:

Which of the following statements regarding the sourcing of gross income is true?

Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is U.S. source?

Wellington, Inc., a U.S. corporation, owns 30% of a CFC that has $50 million of earnings and profits for the current year. Included in that amount is $20 million of Subpart F income. Wellington has been a CFC for the entire year and makes no distributions in the current year. Wellington must include in gross income (before any § 78 gross­up) :

Describe and diagram the timeline that most businesses use to enter the international markets.

Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a dividend (non-Subpart F income) from Holz of 75,000€. The average exchange rate for the year is $1US: 0.6€, and the exchange rate on the date of the dividend distribution is $1US: 0.80€. Wood's exchange gain or loss is:

Which of the following statements is true, regarding the sourcing of dividend income?

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

Portfolio income treated as Subpart F income.

Maximum years for a foreign tax credit carryforward.

OutCo, a controlled foreign corporation in Meena, earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies. All of the dividend payors are located in Meena. OutCo's Subpart F income for the year is:

Method for sourcing income and deductions.

ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation. USCo has historically earned 85% of its income from foreign sources. What amount of ForCo's interest income is U.S. source?

The transfer of the assets of a U.S. corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

Which of the following transactions by a U.S. corporation may result in taxation under § 367?

SilverCo, a U.S. corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. SilverCo transfers $200 in Yen (basis = $150) and $900 in land (basis = $925) to GreenCo. GreenCo uses these assets in carrying on a trade or business outside the United States. What gain or loss, if any, is recognized as a result of this transaction?