Calculating Foreign Tax Credits Before and After the 2017 Tax Cut and Jobs Act

Calculating Foreign Tax Credits Before and After the 2017 Tax Cut and Jobs Act

Tax Law
By Anthony Diosdi The 2017 Tax Cut and Jobs Act significantly changed the way we plan cross-border transactions. Prior to the 2017 Tax Cut and Jobs Act, foreign tax credits were calculated using tax pools. After the enactment of the Tax Cuts and Jobs Act, the pools have been repealed and replaced with a single year indirect credit for the foreign income taxes “attributable to” the item of income under Internal Revenue Code Section 960(a).History of Foreign Tax Credits As a result of the United States taxing U.S. persons on their worldwide income, in 1918, Congress enacted the foreign tax credit system. Foreign tax credits were developed to prevent double taxation of foreign source income. A foreign tax credit is intended to allow a U.S. taxpayer to reduce the U.S.…
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