41 La Paris Societe Anonyme a French corporation is whollyow

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La Paris Societe Anonyme (a French corporation) is wholly-owned by DC. La Paris pays $100 of interest income to DC. La Paris’s income includes $80 of interest income from CDs with US banks and a $100 loss on its business operations in France. What type of income does DC have from La Paris and its source (France or US)?

Solution

DC is earning interest income from La Paris and the source of interest would be France only because it is from the subsidiary incorporated in Paris.

Interest income is chosen by DC because it will save them the additional 24% by recognising the investment made in the stock of the La Paris as debt and interest as return on debt. If they had taken it as return on foreign subsidiary investment than 24% tax would be levied on the return.