Question: Powerco, a domestic corporation, manufactures batteries for sale in the United States and abroad. Powerco markets
Question:
Question:
Powerco, a domestic corporation, manufactures batteries for sale in the United States and abroad. Powerco markets its batteries in Europe through its wholly-owned foreign marketing subsidiary, Powy. Powy was organized in Year 1, and its functional currency is the pound (£).
Powy\'s tax attributes for its first 2 years of operations are as follows:
Taxable income | £100 million | None |
Foreign income taxes (paid at end of year) | £ 20 million | None |
Net Subpart F income (included in £100 million) | £ 40 million | None |
Actual dividend distributions (paid at end of year) | None | £8 million |
The pound had an average value of $1.50 during Year 1, $1.65 during Year 2, and was worth $1.60 at the end of Year 1, and $1.70 at the end of Year 2.
What are the U.S. tax consequences of Powy\'s results from operations in Year 1 and Year 2? Assume that the dividend distribution in Year 2 was not subject to foreign withholding taxes.
Define foreign tax credit in your own word.
Probability & Statistics for Engineers & Scientists
ISBN: 978-0130415295
7th Edition
Authors: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying