Tag: foreign tax credit

By Anthony Diosdi The United States taxes U.S. persons on their worldwide income. In order to mitigate the consequence of worldwide taxation, the foreign tax credit rules were developed to prevent U.S. taxpayers from being double taxed. A foreign tax credit is intended to permit U.S. taxpayers to reduce the U.S. federal income tax on its foreign source income by the foreign income taxes paid on that foreign income. The foreign tax credit rules were also enacted to prevent U.S. taxpayers from utilizing foreign tax credits to offset domestic income. Foreign tax credits are not always permitted to offset federal tax liabilities. Foreign tax credits are denied under Internal Revenue Code Section 901(j) for taxes of certain countries with which the United States does not maintain diplomatic relations, and also…

By Anthony Diosdi Because the United States taxes U.S. persons on their worldwide income, the foreign tax credit was enacted in 1918 to prevent U.S. taxpayers from being taxed on their foreign-source income by both the foreign country where the income was earned and by the United States. The foreign tax credit is intended to allow a U.S. taxpayer to reduce the U.S. federal tax on its foreign-source income (but not U.S. source income) by the foreign taxes paid on that foreign income.To be allowable under 26 U.S.C. Section 901(b), the foreign tax must be an “income, war profits (or) excess profits tax paid or accrued...to any foreign country or to any possession of the United States.” Credit also is allowed under Section 903 for a “tax paid in lieu…

By Anthony Diosdi U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. Recently, the Global Intangible Low-Taxed Income (“GILTI”) made some made changes to the way foreign tax credits are computed. This article discusses the changes in the way foreign tax credits are computed under the GILTI regime.Because the United States taxes U.S. persons on their worldwide income, a system of foreign tax credits was enacted in 1918. Foreign tax credits were enacted to prevent U.S. taxpayers from being taxed on their foreign-source income by both the foreign country where the foreign source income was earned and by the United States. Foreign tax credits allow U.S. taxpayers to reduce U.S. income tax on…

By Anthony Diosdi U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. The main purpose of the foreign tax credit is to mitigate the double taxation of foreign source income that might occur if such income is taxed by both the United States and a foreign country. A U.S. taxpayer may receive a “direct” foreign tax credit Who is the Taxpayer Entitled to the Credit?Under Internal Revenue Code Section 901(b)(1), U.S. citizens and U.S. corporations are entitled to a foreign tax credit for “the amount of any income, war profits, and excess profits taxes paid or accrued during the tax year to any foreign country or any possession of the United States. The…