Question

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?

Answer 1

Answer:

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"