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Tax credits & net funds available to a MNC for foreign subsidary

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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.

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Solution Summary

Tax credits and net funds available to a MNC for foreign subsidiary is examined.

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ANSWERS

Question A
$250,000*(1-0.33)=$167,500 => net income of the subsidiary which is issued as dividends
$167,500*(1-0.09)=$152,425 ...

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