Question: Intec Corporation (a U.S.-based company) has a wholly owned subsidiary located in Shanghai, China that generated income before tax of 500,000 Chinese renminbi (RMB) in the current year. The Chinese subsidiary paid Chinese income taxes at the rate of 25 percent evenly throughout the year, and paid dividends of RMB 200,000 to Intec on October 1. Assume there is no withholding tax on dividends. The following exchange rates for the current year apply:
USS per RMB
January 1 .................................................... $0.125
Average for the year ....................................... 0.120
October 1 ...................................................... 0.118
December 31 .................................................. 0.115
Required: Determine the following related to the income earned by Intec's Chinese subsidiary:
a. The amount of U.S. taxable income in U.S. dollars.
b. The amount of foreign tax credited allowed in the United States.
c. The amount of net U.S. tax liability.