Using the credit method and assuming an individual is taxed on foreign income at a rate of 50% and their domestic tax rate is 40% what percentage of taxes would they pay to their resident country on the foreign income?
A) 0%.
B) 40%.
C) 10%.
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solution：A
Under the credit method the residence country allows the individual to take a tax credit for taxes paid to a source country. The tax rate paid by the resident on the foreign source income is the greater of the domestic and source tax rates.
If the individual lives in a residence jurisdiction that charges 40% taxes on world-wide income, and they have income from a foreign country that enforces source jurisdiction and charges 50% income tax, the individual will end up paying 50% income tax to the foreign country. If the tax rates were reversed (i.e., 50% domestic, 40% foreign) the individual would still pay tax on the foreign source income at 50%, but the taxes will be split between the resident and source countries: 10% to the residence country; 40% to the source country.
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