P18-1 Tax credits
A U.S. - based MNC's has a foreign subsidiary that earns $250,000 before taxes, with all the after-tax funds to be available to the parent in the form of dividends. The applicable taxes consist of a 33% foreign income tax rate, a foreign dividend withholding tax rate of 9%, and a U.S. tax rate of 34%. Calculate the net funds available to the parent MNC if:
a. foreign taxes can be applied as a credit against the MNC's U.S. tax liability.
b. No tax credits are allowed.
$250,000*(1-0.33)=$167,500 => net income of the subsidiary which is issued as dividends
Tax credits and net funds available to a MNC for foreign subsidiary is examined.