Schwesers’s notes vol. 1 page 276, Example about the credit method- I do not understand the tax remifications. I understood that he will pay 600000*.40 on the foreign income, but then the calculations that follows-I got totally lost. Can anybody expand on this and how what is calculated and why? TKs
I’m not using Schweser, but I imagine they print the sol’n in the back. If you still aren’t getting it, try setting up an annual cash flow statement to determine which cash flows are coming in and going out in a given year, that way you can identify what cash flows are coming into the account and what cash flows are going out of the account and help you determine cap gains, income, estate taxes, etc…
Also for foreign income, check to see the which jurisdiction is taxing the income. There may be different rules for each country.
THanks but I did all you have suggested. it still does not click
I finished yesterday so have understood to some extent. will try to explain Its given that total income: 1500 000. foreign income/source country income : 600 000 residence/domestic income : 900 000 total tax paid on domestic income = 900 000 * 40 % = 360 000 In credit method there is a special way of calculating percentage tax which will be applicable on source country income. It is maximum of tax percentage on residence income and tax percentage on source country income. Here tax percentage in residence country = 40 % tax percentage in source country = 35 % so percentage tax which will be applicable on source country income = 40 % Total tax paid on source country income = 600 000 * 40 % = 240 000 tax paid to source country gov. = 600 000 * 35 % = 210 000 tax paid to residence country gov due to source country income = 240 000 - 210 000 = 30 000 So total tax paid to source country gov = 210 000 total tax paid to residence country gov = 360 000 + 30 000 = 390 000