Tenco, a domestic corporation, manufactures tennis rackets for sale in the United States and abroad. Tenco owns 100% of the stock of Teny, a foreign sales subsidiary that was organized in Year 1....

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Tenco, a domestic corporation, manufactures tennis rackets for sale in the United States and abroad. Tenco owns 100% of the stock of Teny, a foreign sales subsidiary that was organized in Year 1. During Year 1, Teny had $15 million of foreign base company sales income, paid $1 million in foreign income taxes, and distributed no dividends. During Year 2, Teny had no earnings and profits, paid no foreign income taxes, and distributed a $14 million dividend.Assume the U.S. corporate tax rate is 21%.Relying on the concepts learned from the assigned materials for this module, you are required to:

  • Analyze the U.S. tax consequences of Teny’s Year 1 and Year 2 activities.

  • Discuss other students’ postings in accordance with the instructions/expectations for Discussion Board postings as provided above.



Note:

  • Feel free to contact other relevant materials that you may deem fit. You must cite and provide references for all materials used as appropriate. Please refer to ‘Discussion Board Postings Rubric’ in answering this Module'sassessments.



Answered 1 days AfterJul 08, 2022

Answer To: Tenco, a domestic corporation, manufactures tennis rackets for sale in the United States and abroad....

Tanmoy answered on Jul 10 2022
87 Votes
Tenco        4
TENCO
Table of Contents
Analysis    3
Year 1    3
Year 2    3
References    5
Analysis
Year 1
    By considering that Tenco owns 100% of Teny stock, the company qualifies themselves as a shareholder of controlled foreign corporation (CFC). This means that the company will include the gross income deemed divided equal to pro-rata share of its income. The company can also claim a deemed paid foreign tax credit which is similar to Teny’s foreign income taxes.
    The tax consequences of Teny’s as per the US rate indicate a total tax of $3150000 (5000000 x 21%). The tax paid from foreign income was 1 million. Hence, the differences of taxes will be $2150000 (3150000 - $1000000).
    The 26 US code 951 states that if the foreign corporation is under the control of the US shareholder at any point during the year and the one who owns the stock of...
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