Foreclosure Bank Corporation (“Foreclosure”), a U.S. banking corporation, lends money to Foreign Development, Inc., relends the borrowed funds to various Country G corporations. Country G imposes a 30% withholding tax of $300,000 on the $1,000,000 of interest paid by Foreign Development, Inc. to Foreclosure, which Foreign Development, Inc. withholds from the interest payments to Foreclosure. (This withholding tax applies to Foreclosure’s interest income instead of the generally imposed Country G net income tax.) Country G credits 60% of the tax to an account of Foreign Development, Inc. on the date the tax is withheld and requires Foreign Development, Inc. to transfer the credited amount to the various Country G corporations that had borrowed funds from Foreign Development, Inc.
(a) Is the $300,000 withholding tax on the interest income creditable by Foreclosure?
(b) How would the result in part (a) differ if the Country G corporations that had borrowed the funds from Foreign Development, Inc. were wholly owned by the Country G government?