Young Corporation conducts a business in both the United States and a foreign country. In each of the following scenarios, what is Young's worldwide (combined U.S . and foreign) tax rate relative to the branch income it earns in the foreign country? Assume that Young wants to claim the maximum foreign tax credit possible.

What incentive exists for the foreign country to increase its tax rates if the United States taxes foreign income when earned? What incentive exists for a foreign country to lower its tax rates if a foreign subsidiary earns income in one year but is taxed in a later year when the income is repatriated to the United States?

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U.S. Tax Rate Foreign Tax Rate Scenario 0% 15% 21% 21% 3 4 21% 34% 21% 40%