Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000.If the subsidiary pays a dividend of $600,000,what is the amount of the indirect foreign tax credit that its parent will receive?
A)$480,000
B)$800,000
C)$400,000
D)it receives no foreign tax credit

Question

Quizplus · Accepted Answer

The indirect foreign tax credit allows the parent company to credit taxes paid by the subsidiary against its domestic tax liability on the same income. The credit is proportional to the dividend received, so it's calculated as ($600,000 / $1,000,000) * $800,000 = $480,000.

Suppose a Foreign Subsidiary Earns $1 Million After Paying Foreign