Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly-owned foreign subsidiaries. Relevant information for these entities for the current fiscal year appears in the following table: 

Additional Information: 

1. Entities C, F, and G manufacture products that are sold in their home countries as well as to sister entities within the WUC group. 

2. Entity A purchases finished products from Entity F and then sells them throughout the Middle East. Only 5 percent of A’s income is generated from sales to customers in Bahrain; 95 percent of A’s income is from sales to foreign customers. 

3. Entity B purchases finished products from Entity G and sells them throughout North and South America. Only 1 percent of B’s income is from sales to customers in Bermuda; 99 percent of B’s income is from sales to foreign customers. 

4. Entity D purchases finished products from Entity C and then sells them throughout Europe. Only 40 percent of D’s income is generated from sales to customers in Hungary; 60 percent of D’s income is from sales to foreign customers. 

5. Entity E makes passive investments in stocks and bonds in European financial markets. All of E’s income is derived from dividends and interest. 

6. Entity H provides accounting and other management services to WUC’s other foreign operations. All of H’s income is derived from providing services to sister companies within the WUC group. 

Required: 

1. Determine the amount of U.S. taxable income for each entity (A, B, C, D, E, F, G, and H). 

2. Calculate the foreign tax credit allowed in the United States, first by foreign tax credit basket and then in total. 

3. Determine the net U.S. tax liability on foreign source income. 

4. Determine any excess foreign tax credits and identify by basket.

Transcribed Image Text:

Dividend Net Dividend Income Tax Rate Legal Income Withholding Received by Parent Entity Country Form Activity before Tax Tax Rate A Sales $1,000,000 $1,000,000 Bahra in Bermuda Branch 0% 0% ৪,000,000 8,350,000 B Corporation Corporation Corporation Corporation Sales 8,000,000 Manufacturing Hong Kong Hungary Ireland 10,000,000 16.5 9,100,000 1.750.000 D. Sales 10,000,000 E Investment 2.000,000 12.5 F Malaysia Branch Manufecturi ng 10,000,000 24 7.600,000 3,3250,000 Mexico 5,000,000 Corporation Corporation Manufacturing 30 H Switzerland Service 500,000 17 35 269,750 O O o O n