Assignment 1 Unit 5 -Dougco, a domestic corporation
Assignment 1: Unit 5 ProblemsIn each of the following independent situations involving transfers of tangible property, determine which transfer pricing methods applies and compute a transfer price using the appropriate method. Show all of your computations.Dougco, a domestic corporation, owns 100% of Thaico, a Thailand corporation. Dougco manufactures top-of-the-line office chairs at a cost of $300 per unit and sells them to Thaico, which resells the goods (without any further processing) to unrelated foreign customers for $450 each. Independent foreign distributors typically earn commissions of 20% (expressed as a percentage of the sales price) on the purchase and resale of products comparable to those produced by DougcoClairco, a domestic corporation, owns 100% of Shuco, a foreign corporation that manufactures women’s running shoes at a cost of $30 each and sells them to Clairco. Clairco attaches its trade name to the shoes (which has a significant effect on their resale price), and resells them to unrelated customers in the United States for $80 each. Independent foreign manufacturers producing similar running shoes typically earn a gross profit markup (expressed as a percentage of the manufacturing costs) of 15%.Tomco, a domestic corporation, owns 100% of Swissco, a Swiss corporation. Tomco manufactures riding lawn mowers at a cost of $2,500 per unit, and sells them to unrelated foreign distributors at a price of $3,750 per unit. Tomco also sells the equipment to Swissco, which then resells the goods to unrelated foreign customers for $4,250 each. The conditions of Tomco’s sales to Swissco are essentially equivalent to those of the sales made to unrelated foreign distributors.USAco, a domestic corporation, owns all of the stock of FSub, a foreign corporation. FSub manufactures widgets and sells them at a price of $100 to USAco, which then resells the widgets to U.S. customers. USAco’s gross receipts for the year are $200 million.Under what circumstances would USAco be potentially subject to the Code Sec. 6662(e) substantial valuation misstatement penalty?Erica is a citizen of a foreign country, and is employed by Fco, a foreign corporation that manufactures industrial equipment. Fco does not have a permanent establishment in the United States. Erica’s job is to provide technical assistance to customers who purchase Fco’s products. Many of Erica’s customers are located in the United States. Consequently, Erica consistently spends about 120 working days per year in the United States. Erica does not possess a green card. Assume that the United States has entered into an income tax treaty with Erica’s home country that is identical to the United States Model Income Tax Convention of November 15, 2006.How does the United States tax Erica’s activities?Finco is a wholly-owned Finnish manufacturing subsidiary of Winco, a domestic corporation that manufactures and markets residential window products throughout the world. Winco has been Finco’s sole shareholder since Finco was organized in 2010. At the end of the current year, Winco sells all of Finco’s stock to an unrelated foreign buyer for $25 million. At that time, Finco had $6 million of post-1986 undistributed earnings, and $2 million of post-1986 foreign income taxes that have not yet been deemed paid by Winco. Winco’s basis in Finco’s stock was $5 million immediately prior to the sale.Assume Winco’s capital gain on the sale of Finco’s stock is not subject to any foreign taxes, and that the U.S. corporate tax rate is 35%. What are the U.S. tax consequences of this sale for Winco?Now assume that instead of selling the stock of Finco, Winco completely liquidates Finco, and receives property with a market value of $25 million in the transaction. As in the previous scenario, at the time of the liquidation, Finco had $6 million of accumulated earnings and profits, and $2 million of foreign income taxes that have not yet been deemed paid by Winco.Assume that Winco’s basis in Finco’s stock was $5 million immediately prior to the liquidation, and that the United States corporate tax rate is 35%. What are the United States tax consequences of this liquidation for Winco?Directions for Submitting your AssignmentCompose your Assignment in a Microsoft Word document and save it as Username AC559 Assignment 1 Unit 5.doc (Example: TAllen AC559 Assignment 1 Unit 5.doc). Submit your file by selecting the Unit 5: Assignment 1 in the Dropbox by the end of Unit 5.Assignment 2: Part 2 of Course PaperIn Unit 5, you will be submitting Part Two (Tax Planning Considerations for the Organization to Expand Abroad) of your Course Paper. Please review the Course Paper information below.Make sure you are thorough in your analysis and recommendation of the form of entity you suggest that USco choose for expansion. Comment on any applicable foreign tax laws, tax rates, and withholding taxes. Your paper should include references to transfer pricing requirements related to your selected country, as well.Make sure you meet the guidelines set below for formatting.Course Paper:For the Course Paper, you will engage in tax planning research culminating in two reports that will be submitted to the CEO of USco, a United States Corporation. The first report will involve tax planning issues related to the organization’s employees and will be due in Unit 4. The second report will involve tax planning issues related to the organization itself with respect to proposed international operations and will be due in Unit 5.USco designs and manufactures specialized equipment used in various manufacturing applications. The organization is contemplating expanding its operations overseas. The CEO has questions concerning the form of expansion (branch office, subsidiary, etc.) and the impact on employees (U.S. citizens living abroad, Nonresident aliens, resident aliens, etc.) and the tax implications for the organization itself.For purposes of this Assignment, you will select your own country of interest for the proposed expansion. Make sure that your selected country is one that has a tax treaty with the United States. You can find a listing of these tax treaty countries at the IRS website (www.irs.gov). Click on the business link, then international businesses. You will find tax treaties as one of the international business topics.You will want to use the textbook, IRS website, and the professional literature to determine relevant information that should be contained in each report. Your completed reports should be well-organized, well-documented, and clearly focused on the relevant issues appropriate to the course project. Each report should conform to the following parameters:Include a Title PageIntroductionBodyConclusionExecutive SummaryReference list5–10 pages in length (excluding title page and reference list)Use current APA formatDirections for Submitting your PaperCompose part two of your Course Paper in a Microsoft Word document and save it as Username AC559 Assignment 2 Unit 5.doc (Example: TAllen AC559 Assignment 2 Unit 5.doc). Submit your file by selecting the Unit 5: Assignment 2 Dropbox by the end of Unit 5.