80.2K

Verified Solution

Link Copied!

AB Corporation is a US Corporation, organized under the laws of California, which made $$22,000,000$ of net income from the manufacture and sale of electronic testing equipment both in the US and abroad. Approximately $20\%$ of the companies income is from sales abroad. AB Corporation has $$40,000,000$ of depreciable assets.

AB Corporation operates a foreign branch in Canada, which made $$1,000,000$ all of net income selling to Canadian customers and paid $$320,000$ of Canadian tax. The branch remitted $$300,000$ to AB Corporation and withheld $$15,000$ on the payment.

AB Corporation owns $100\%$ of Sub$1,$ incorporated in Japan. Sub$1$ made $$4,000,000$ of net income and paid $$1,000,000$ of Japanese taxes by purchasing electronic testing equipment from AB and selling the equipment throughout the region. $60\%$ of Sub$1$ net income is made from selling to customers in Japan. The remaining $40\%$ is made from selling to customers in Thailand. Sub$1$ paid a dividend of $$250,000$ to AB during the current year and withheld taxes of $$20,000.$ Sub $1$ has $$20,000,000$ of depreciable assets.

AB Corporation also owns $100\%$ of Sub$2,$ incorporated in Ireland. Sub$2$ made $$1,500,000$ of net income and paid $$225,000$ of Irish taxes by manufacturing and selling parts to AB which AB uses to manufacture its testing equipment. Sub $2$ has $$10,000,000$ of depreciable assets.

Calculate AB Corporation$$s US tax liability $($show your calculations$).$ Write a memo discussing the specific US tax consequences to AB and its subsidiaries based on the current year$$s activity. Are there alternative organizational structures that would be more beneficial to AB$?$

Answer & Explanation Solved by verified expert

See Answer