May I Credit Taxes Paid in a Foreign Jurisdiction?

In January 2022, the U.S. Treasury and the IRS published final foreign tax credit (FTC) regulations narrowing the availability of FTC allowed related to income taxes paid in a foreign jurisdiction.

Under the final regulations, each tax imposed by a foreign country must be analyzed separately and independently to determine whether it constitutes a creditable foreign income tax.

A foreign levy either is or is not a creditable foreign income tax in its entirety.

Under the new Attribution Rule, residents (i.e., corporate income taxes) and nonresidents (typically withholding taxes) have a separate set of rules.

As a result of the final regulations, numerous foreign withholding taxes that were previously creditable are no longer eligible for a U.S. FTC.