Santana Music is a U.S.-based MNC whose foreign subsidiary had pretax income of $55,000; all after-tax income

Question:

Santana Music is a U.S.-based MNC whose foreign subsidiary had pretax income of $55,000; all after-tax income is available in the form of dividends to the parent company. The local tax rate is 40%, the foreign dividend withholding tax rate is 5%, and the U.S. tax rate is 34%. Compare the net funds available to the parent corporation

(a) If foreign taxes can be applied against the U.S. tax liability and

(b) If they cannot.

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...