Harry Mining, a U. S. minusbased MNC has a foreign subsidiary that earns $1,050,000 before local taxes, with all the after tax funds to be available to the parent in the form of dividends. The foreign income tax rate is 30 percent, the foreign dividend withholding tax rate is 15 percent, and the firm's U. S. tax rate is 35 percent. What are the funds available to the parent MNC if foreign taxes can be applied as a credit against the MNC's U. S. tax liability?

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Business

Jensen King

14 August, 03:04

Harry Mining, a U. S. minusbased MNC has a foreign subsidiary that earns $1,050,000 before local taxes, with all the after tax funds to be available to the parent in the form of dividends. The foreign income tax rate is 30 percent, the foreign dividend withholding tax rate is 15 percent, and the firm's U. S. tax rate is 35 percent. What are the funds available to the parent MNC if foreign taxes can be applied as a credit against the MNC's U. S. tax liability?

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Bentley Phillips · Answer 1

The correct answer will be "$624,750".

Explanation:

Harry's income = $1,050,000

The rate of foreign income tax = 30%

So,

⇒ Foreign country tax = 1050000 * 30%

⇒ = $315000

Through this he get Profit after tax = 1050000 - 315000

= $735000

Now,

⇒ Withheld tax = 735000 * 15%

⇒ = $110250

After that the fund available to MCC = 735000 - 110250

= $624750

Tax of US = 0

So that after applying the foreign taxes, the fund available to MNC is "$624,750"