Valley View Incorporated, a U.S. corporation, formed a wholly owned Mexican corporation to conduct manufacturing and selling operations in Mexico. In its first year of operations, the Mexican corporation reported taxable income of Mex$5,000,000 and paid Mexican income tax of Mex$1,500,000 on its taxable income. In the second year of its operations, the Mexican subsidiary pays a dividend of Mex$2,000,000 to Valley View, Incorporated. The dividend is subject to a 10 percent withholding tax (Mex$200,000) under the U.S.-Mexico treaty. Assume the currency translation rate for both years is Mex$1:US$0.05. Required: a. Assuming that Valley View Incorporated's Mexican subsidiary does not have any subpart F income or global intangible low-tax income (GILTI), how much taxable income would Valley View, Incorporated, report in U.S. dollars from its Mexican subsidiary's first year of operations? b-1. How much of the dividend from the Mexican subsidiary is subject to U.S. taxation? b-2. Are any of the Mexican taxes imposed on the income distributed creditable in the U.S.? c. If Valley View, Incorporated only held 5 percent of the Mexican corporation stock, how much of the dividend from the Mexican corporation would be subject to U.S. taxation, and would any of the Mexican taxes imposed on the income distributed be creditable in the U.S.?
Valley View Incorporated, a U.S. corporation, formed a wholly owned Mexican corporation to conduct manufacturing and selling operations in Mexico. In its first year of operations, the Mexican corporation reported taxable income of Mex$5,000,000 and paid Mexican income tax of Mex$1,500,000 on its taxable income. In the second year of its operations, the Mexican subsidiary pays a dividend of Mex$2,000,000 to Valley View, Incorporated. The dividend is subject to a 10 percent withholding tax (Mex$200,000) under the U.S.-Mexico treaty. Assume the currency translation rate for both years is Mex$1:US$0.05. Required: a. Assuming that Valley View Incorporated's Mexican subsidiary does not have any subpart F income or global intangible low-tax income (GILTI), how much taxable income would Valley View, Incorporated, report in U.S. dollars from its Mexican subsidiary's first year of operations? b-1. How much of the dividend from the Mexican subsidiary is subject to U.S. taxation? b-2. Are any of the Mexican taxes imposed on the income distributed creditable in the U.S.? c. If Valley View, Incorporated only held 5 percent of the Mexican corporation stock, how much of the dividend from the Mexican corporation would be subject to U.S. taxation, and would any of the Mexican taxes imposed on the income distributed be creditable in the U.S.?
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter16: Multijurisdictional Taxation
Section: Chapter Questions
Problem 7P
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Transcribed Image Text:Valley View Incorporated, a U.S. corporation, formed a wholly owned Mexican corporation to conduct manufacturing and selling
operations in Mexico. In its first year of operations, the Mexican corporation reported taxable income of Mex$5,000,000 and paid
Mexican income tax of Mex$1,500,000 on its taxable income. In the second year of its operations, the Mexican subsidiary pays a
dividend of Mex$2,000,000 to Valley View, Incorporated. The dividend is subject to a 10 percent withholding tax (Mex$200,000)
under the U.S.-Mexico treaty. Assume the currency translation rate for both years is Mex$1:US$0.05.
Required:
a. Assuming that Valley View Incorporated's Mexican subsidiary does not have any subpart F income or global intangible low-tax
income (GILTI), how much taxable income would Valley View, Incorporated, report in U.S. dollars from its Mexican subsidiary's first year
of operations?
b-1. How much of the dividend from the Mexican subsidiary is subject to U.S. taxation?
b-2. Are any of the Mexican taxes imposed on the income distributed creditable in the U.S.?
c. If Valley View, Incorporated only held 5 percent of the Mexican corporation stock, how much of the dividend from the Mexican
corporation would be subject to U.S. taxation, and would any of the Mexican taxes imposed on the income distributed be creditable in
the U.S.?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
If Valley View, Incorporated only held 5 percent of the Mexican corporation stock, how much of the dividend from the Mexican
corporation would be subject to U.S. taxation, and would any of the Mexican taxes imposed on the income distributed be
creditable in the U.S.?
Taxable dividend income
Tax creditable
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