Question

Spartan Corporation, a U.S. corporation, reported $6.5 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income at 15 percent, and the United States taxes corporate income at 21 percent. Required: a. If the United States provided no mechanism for mitigating double taxation, what would be the total tax (U.S. and foreign) on the $6.5 million of branch profits

Answer 1

Answer: $2,340,000

Explanation:

Spartania Tax on branch income:

= 15% * 6,500,000

= $975,000

U.S. Corporate tax:

= 21% * 6,500,000

= $1,365,000

Total tax:

= 975,000 + 1,365,000

= $2,340,000