Echo Inc., which has a 21 percent U.S. tax rate, plans to expand its business into Country
Question:
Echo Inc., which has a 21 percent U.S. tax rate, plans to expand its business into Country J. It could open a branch office, or it could create a foreign subsidiary in Country J. The branch office would generate $5,000,000 income in year 0. The foreign subsidiary would incur incremental legal costs and, as a result, would generate only $4,750,000 income in year 0. This income would be taxed at Country J’s 15 percent corporate rate. Any repatriation of the subsidiary’s earnings would qualify for the 100 percent dividends-received deduction. Assume none the subsidiary’s earnings would be considered GILTI or subpart F income. Should Echo open the branch office or form the subsidiary to maximize year 0 after-tax foreign earnings?
Step by Step Answer:
Principles Of Taxation For Business And Investment Planning 2019 Edition
ISBN: 9781260161472
22nd Edition
Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan