New Limitations on Using Splitting Events to Maximize Your §902 Foreign Tax Credit Can Hurt Your Business
Tax credits are a wonderful thing. They don’t just reduce your taxable income. They offset dollar-for-dollar your U.S. tax bill. While the foreign tax credit (direct or indirect) is meant to protect you from double taxation, it only works to the extent you’re allowed to claim it.
In the November/December 2012 issue of Corporate Taxation I published a long article on the impact of one particular limitation (IRC §909), the latest salvo in the Internal Revenue Service’s effort to tax in the U.S. the repatriated foreign earnings of domestic corporations. It includes a good introduction to the mechanics of the indirect foreign tax credit (IRC §902) and its relation to subpart F income. The object of the new limitation is to unwind many of the business structures that have been used for years (particularly, the so-called “hybrids”) to increase the allowed tax credit without actually having to repatriate (and pay U.S. tax on) the related foreign income.
Here is a link to the article: FTC Splitting Events_A Practical Guide
I hope you find it useful.
This article is for informational purposes only and does not constitute legal advice. You should consult a qualified attorney before taking any action.