A company from the United States (U.S.) has two international subsidiaries (one in Country A and one in Country B). The foreign subsidiaries are wholly owned by the U.S. company, and both distribute 70% of their earnings to the U.S. parent company as dividends. The corporate tax rate is 35% in the U.S., 30% in Country A and 28% in Country B. Country A imposes a 10% withholding tax on all dividends distributed to foreign investors. The foreign earnings before taxes from the subsidiary in Country A are 3,000,000 U.S. dollars, and from the subsidiary in Country B, they are 2,500,000 U.S. dollars. The U.S. company averages the tax credits and liabilities of the two foreign units. Briefly explain this method of multinational tax management.

 Calculate the excess foreign tax credits and/or deficits from each subsidiary and explain if any additional U.S. taxes would be due. Round your answer to two decimal points.

Answer rating: 100% (QA)

The method of averaging the tax credits and liabilities of the two foreign subsidiaries is known as ... View the full answer