Sales and costs are 200 and 100, respectively, for the Tunisian, and 100 and 60 for the Hong Kong branch. The tax rates are 50 percent in Tunisia, and 25 percent in Hong Kong. The parent's home country, Germany, has a 40 percent tax rate and applies the credit system.
(a) Verify that there is an excess tax credit of 4.
(b) Verify that when the parent shifts costs worth 40 from Hong Kong to Tunisia, the original excess tax credit has been replaced by a foreign tax shortfall of 6.
(c) Suppose that the Tunisian tax authorities unexpectedly reject the additional costs (40), so that this part of the costs is not deductible anywhere. What is the total tax?