Assignment 1 Unit 4 -Tireco, a domestic corporation

Assignment 1: Unit 4 ProblemsTireco, a domestic corporation, is a tire manufacturer. Tireco is planning to build a new production facility, and has narrowed down the possible sites for this new plant to either Goodstan (a low-tax foreign country) or Badstan (a high-tax foreign country). Tireco will structure the new facility as a wholly-owned foreign subsidiary, Sproutco, and finance Sproutco solely with an equity investment. Tireco projects that Sproutco’s results during its first year of operations will be as follows:Sales……………………………………………………….$400,000,000Cost of goods sold………………………………………(290,000,000)Selling, general, and administrative expenses………………..(60,000,000)Net profit …………………………………………………………………..$50,000,000Assume that the United States corporate tax rate is 35%, the Goodstan rate is 20%, and the Badstan rate is 40%. Further, assume that both Goodstan and Badstan impose a 5% withholding rate on dividend distributions, but neither country imposes withholding taxes on interest or royalty payments.Compute the total tax rate (United States plus foreign) on Sproutco’s profits under the following assumptions:The new production facility is located in Goodstan and Sproutco repatriates none of its profits during the first year.The new production facility is located in Goodstan and Sproutco repatriates 30% of its profits during the first year through a dividend distribution.The new production facility is located in Badstan and Sproutco repatriates none of its profits during the first year.The new production facility is located in Badstan and Sproutco repatriates 30% of its profits during the first year through a dividend distribution.The new production facility is located in Badstan and Tireco modifies its plans for Sproutco as follows:finance Sproutco with both debt and equity, such that Sproutco will pay Tireco $15 million of interest each year,charge Sproutco an annual royalty of $10 million for the use of Sproutco’s patents and trade secrets, andeliminate Sproutco’s dividend distribution.What do the results of these various scenarios suggest regarding the differential tax costs of operating in low- versus high-tax countries?Six years ago, Bullco, Inc., a domestic manufacturer of mold- injection systems, established a sales and service operation in Madrid, Spain. The Madrid office was structured as a Spanish corporation, but Bullco made a check-the-box election to treat the operation as a branch in order to obtain a U.S. tax deduction for the branch’s start-up losses. The Spanish operation has become quite profitable and Bullco wishes to change its United States tax classification from a branch to a subsidiary by filing a new check-the-box election (this is feasible since 5 years had passed since the first election). At the time of the conversion, the Spanish operation’s assets includes some local currency, accounts receivable from Spanish customers, an inventory of spare parts, and an extensive database of information regarding Spanish customers that the marketing personnel had painstakingly developed over the years. Bullco’s CFO has asked you to brief her regarding the United States tax consequences of the incorporation transaction. Briefly outline your response.A foreign corporation can structure its United States operations as either a branch or a subsidiary. What are the tax advantages of operating in the United States through a separately incorporated subsidiary? What are the tax advantages of operating in the United States through an unincorporated branch? What general business factors should be considered when choosing between the branch and subsidiary forms of doing business in the United States?Directions for Submitting your AssignmentCompose your Assignment in a Microsoft Word document and save it as Username AC559 Assignment 1 Unit 4.doc (Example: TAllen AC559 Assignment 1 Unit 4.doc). Submit your file by selecting the Unit 4: Assignment 1 in the Dropbox by the end of Unit 4.Assignment 2: Part 1 of Course PaperIn Unit 4, you will be submitting Part One (Tax Planning Considerations for Employees) of your Course Paper. Please review the Course Paper information below.Make sure to include information on the country you chose, the specific provisions of the tax treaty with that country, the foreign income exclusion, the foreign tax credit for employees, and tax rates that are important when considering the tax implications on employees. In addition, you should reference employment taxes, benefits, and other issues if they relevant to your chosen country.You should also be thorough in your discussion of various employment arrangements. 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 (United States 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 one of your Course Paper in a Microsoft Word document and save it as Username AC559 Assignment 2 Unit 4.doc (Example: TAllen AC559 Assignment 2 Unit 4.doc). Submit your file by selecting the Unit 4: Assignment 2 Dropbox by the end of Unit 4.