Cholati Foreign Corporation

Cholati is a foreign corporation that produces fi ne chocolates for sale worldwide. Cholati
markets it chocolates in the United States through a branch sales offi ce located in New York
City. During the current year, Cholati’s effectively connected earnings and profi ts are $3
million, and its U.S. net equity is $6 million at the beginning of the year, and $4 million at
the end of the year. In addition, a review of Cholati’s interest expense account indicates
that it paid $440,000 of portfolio interest to an unrelated foreign corporation, $200,000
of interest to a foreign corporation which owns 15% of the combined voting power of
Cholati’s stock, and $160,000 of interest to a domestic corporation.
Compute Cholati’s branch profi ts tax, and determine its branch interest withholding tax
obligations. Assume that Cholati does not reside in a treaty country.