Calculating the Foreign Tax Credit- Don’t Put All Your Eggs in One Basket
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. Prior to the Tax Cuts and Jobs Act of 2017, many multinational corporations kept their foreign source earnings and profits (“E&P”) offshore to defer the U.S. tax consequences on this income. Foreign tax credits were typically only considered when foreign source E&P was repatriated to the U.S. The 2017 Tax Cuts and Jobs Act limited multinational corporations ability to defer U.S. tax on foreign source E&P…