Hoosier Industries is a U. S. multinational corporation with two wholly owned subsidiaries: one in Malaysia and one in Japan. Assume the local tax rates are 35% in the United States, 20% in Malaysia, and 45% in Japan. Each of the three corporations generates $ 100 million of locally taxed income. No withholding taxes are applicable here. All the foreign income falls in the general basket.
a. After paying taxes, the Malaysian subsidiary repatriates its after- tax earnings. Suppose that none of the Japanese earnings are repatriated. What is Hoosier’s current U. S. tax liability after foreign tax credits?
b. Instead, suppose that both subsidiaries repatriate their after- tax earnings. How would this change your answer to part a?
c. Return to the original fact pattern. Suppose that the Malaysian-source income fell in a passive in-come basket, and the Japanese- source income fell in the general basket. How would this change your answer to part a?
d. Building on part c, suppose that both subsidiaries repatriate their after- tax earnings. How would this change your answer to part c?