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XYCo, a domestic corporation, manufactures widgets for sale globally.
XYCo, a domestic corporation, manufactures widgets for sale globally. XYCo operates in Europe through EUCo, a wholly owned French subsidiary that manufactures a special line of widgets for the European market. In addition, EUCo owns 100% of UKCo, a UK corporation, that markets EUCo's products in the United Kingdom. At the end of the current year, the undistributed earnings and foreign income taxes of EUCo and UKCo are: EUCo UKCo Post 1986 undistributed earnings $110 million $80 million Post 1986 foreign income taxes $40 million $27 million During the current year, UKCo distributed a $10 million dividend to EUCo, and EUCo distributed a $10 million dividend to XYCo. To simplify the computations, assume that neither dividend attracted withholding tax in France or the UK, and the dividend received by EUCo was exempt from French tax. Compute XYCo's deemed foreign paid foreign tax credit, as well as the residual US tax, if any, on the dividend XYCo received from EUCo. Assume the US tax rate is 21%. (Ignore any subpart F implications in the question.)
