Question

Green Valley Exporters USA has $100,000 of before tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%. If the U.S. has a bilateral trade agreement with the host country that calls for the total tax paid to be equal to the maximum amount that could be paid in the highest taxing country, what is the total amount of income taxes Green Valley Exporters will pay to the host country, and how much will they pay in U.S income taxes on the foreign earned income?A) $25,000

B) $35,000
C) $51,250
D) $60,000

Answer 1

a. A) $25,000

b. $10,000

Step-by-step explanation:

A. Calculation for what is the total amount of income taxes Green Valley Exporters will pay to the host country

Total amount of income taxes to pay host country=$100,000*corporate income tax rate of 25%

Total amount of income taxes to pay host country=$25,000

Therefore the total amount of income taxes Green Valley Exporters will pay to the host country will be $25,000

B. Calculation for how much will they pay in U.S income taxes on the foreign earned income

First step is to calculate tax amount in US

Tax amount in US=$100,000*35%

Tax amount in US=$35,000

Second step is to calculate host country corporate income tax rate

Host country corporate income tax rate =$100,000*25%

Host country corporate income tax rate=$25,000

Last step is to calculate how much will they pay in U.S income taxes on the foreign earned income

U.S income taxes on the foreign earned income=$35,000-$25,000

U.S income taxes on the foreign earned income=$10,000

Therefore how much will they pay in U.S income taxes on the foreign earned income is $10,000