To modernize and clarify foreign tax credits, the IRS issued lengthy and imitating final regulations that changes the type of taxes applicable for the foreign tax credit. Some key areas of note are highlighted below:
To qualify as a foreign income tax, there are now four components:
Realization
Gross receipts
Net income
Attribution based on activities, source, or situs of property
Taxes in lieu of income tax must meet two requirements:
Be deemed a tax
Satisfy a substitution requirement
Generally imposed
Non-duplication
Close connection
Jurisdiction-to-tax
A refundable foreign tax credit is not eligible for a foreign tax credit.
July 15, 2022
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