When Can a Foreign Tax Credit be Claimed? Part II. The Changes GILTI Made in the Way Foreign Tax Credits are Calculated

When Can a Foreign Tax Credit be Claimed? Part II. The Changes GILTI Made in the Way Foreign Tax Credits are Calculated

Tax Law
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…
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When Can a Foreign Tax Credit be Claimed?

When Can a Foreign Tax Credit be Claimed?

Tax Law
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…
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