A U.S. corporation is subject to an income tax rate of 35% and has a branch in the UK, which paid the national corporate tax rate of 30% on its earnings there. The branch generated taxable income from operations in the UK equivalent to $2,000,000.

What is the amount of taxes owed to the U.S. government on the income generated in the UK?

This is calculated by taking the difference between the US corporate income tax rate (35%) and the UK corporate tax rate (30%), then multiplying it by the total taxable income ($2,000,000).

The US government requires that US corporations pay taxes on any income earned worldwide. This means that any income earned by a US corporation's branch in the UK must be reported to the US government and taxes must be paid on the income.

The amount of taxes owed to the US government is calculated by taking the difference between the US corporate income tax rate (35%) and the UK corporate tax rate (30%), then multiplying it by the total taxable income earned in the UK ($2,000,000). In this case, the amount of taxes owed is $600,000.

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DanielDayLewis DanielDayLewis · Answer 2 · 2025-04-13T13:09:34-04:00

Final answer:

The U.S. corporation owes $100,000 to the U.S. government in taxes on its income generated in the U.K., after taking into account tax credits from the taxes paid in the U.K.

Explanation:

To calculate the tax that the U.S. corporation owes to the U.S. government on the income generated in the UK, we need to understand the concept of tax credits. Given that the corporation is U.S.-based it is required to pay the U.S. corporate tax rate of 35%. However, since the income is generated in the UK and is subjected to the UK national corporate tax of 30%, this tax can be applied as a credit toward the U.S. corporate tax owed.

First calculate the tax owed to UK: 30/100 * $2,000,000 = $600,000. Then, calculate the total tax obligation in the U.S.: 35/100 * $2,000,000 = $700,000. Therefore, the U.S. corporate tax due after crediting the UK tax is: $700,000 - $600,000 = $100,000.

To summarize, the amount of taxes owed to the U.S. government on the income generated in the UK is $100,000. It's important to note that tax laws are complex and subject to change, and there may be other factors in play in a real-world scenario that affect this calculation, such as current tax treaties between the U.S. and the UK.

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