Pacific Jewel Airlines (Hong Kong). Pacific Jewel Airlines is a U.S.-based airfreight firm with a wholly owned subsidiary in Hong Kong. The subsidiary, Jewel Hong Kong, has just completed a long-term planning report for the parent company in San Francisco, in which it has estimated the following expected earnings and payout rates for the years 2011–2014.

The current Hong Kong corporate tax rate on this category of income is 16.5%. Hong Kong imposes no withholding taxes on dividends remitted to U.S. investors (per the Hong Kong–United States bilateral tax treaty). The U.S. corporate income tax rate is 35%. The parent company wants to repatriate 75% of net income as dividends annually.

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a. Calculate the net income available for distribution by the Hong Kong subsidiary for the years 2004–2007. b. What is the amount of the dividend remittance expected to the U.S. parent each year? c. After calculation of U.S. tax liabilities, what is the total dividend after tax (all Hong Kong and U.S. taxes) expected each year? d. What is the effective tax rate on this foreignsourced income per year?

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