Velocity, Inc., a foreign corporation, operates a U.S. branch. It reports the fo

Question

Velocity, Inc., a foreign corporation, operates a U.S. branch. It reports the following tax results and other information for the year.

a. Compute Velocity’s dividend equivalent amount for the tax year.
Velocity's dividend equivalent amount is $______

b. Determine Velocity’s liability for the branch profits tax for the year.
The branch profits tax is $____

Pretax earnings effectively connected with a U.S. trade or business $900,000 U.S. corporate tax (at 34%) 306,000 Remittance to home office 400,000 Increase in U.S. net equity 194,000

Explanation / Answer

a. Velocity's dividend equivalent amount is $ 706000 (ie. Pretax earning $900000 - Increase in US net equity $194000)

b. The branch profits tax is $ 170000 [ie. (Pretax earnings $900000 - Remittance to home office $400000) * US Corporate tax 34%]

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