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Final Foreign Tax Credit Regulations Released With Immediate Effect, Putting Creditability of Foreign Taxes at Risk  


Author:  Layla J. Asali.; Rocco V. Femia.; Loren C. Ponds.; Caroline R. Reaves.


Source: Volume 39, Number 03, Spring 2022 , pp.33-43(11)




Journal of Taxation of Investments

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Abstract: 

Under new regulations, a foreign tax credit is available only for foreign income and withholding taxes that conform closely to U.S. tax law, including with respect to the application of the arm’s length principle, the allowance of deductions, and the sourcing of income earned by non-residents. In particular, withholding taxes on services and royalties imposed on the basis of the residence of the payor or on a similar basis will not be creditable except when imposed directly on a U.S. taxpayer that benefits from a U.S. tax treaty permitting a credit. Such taxes are common outside of the U.S. tax treaty network. The new regulations will deny foreign tax credits for foreign taxes that were clearly creditable under prior law and raise practical and interpretive issues for taxpayers in routine fact patterns.

Keywords: TD 9959, foreign tax credit, creditability, double taxation, nonresident, sourcing, withholding, royalties

Affiliations:  1: Miller & Chevalier Chartered; 2: Miller & Chevalier; 3: Miller & Chevalier; 4: Miller & Chevalier.

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