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US Treasury Restricts US Foreign Tax Credits

by Glen Shapiro, Tax-News.com, New York

19 September 2016


The US Treasury Department and the Internal Revenue Service (IRS) have issued Notice 2016-52, which declares their intention to prevent a US multinational that has been subject to a foreign-initiated tax adjustment to use foreign tax credits without repatriating the associated income.

The Notice has been issued following the retroactive state aid investigations by the European Commission (EC) against the tax practices of US multinationals, beginning with the claim against Apple of up to EUR13bn (USD14.5bn), plus interest.

Treasury Secretary Jack Lew recently indicated that the EC's "actions also threaten to erode America's corporate tax base. US companies could claim foreign tax credits against their US tax bill for any tax-related payments to EU member states."

The IRS's measure will negate any attempt by an affected company to split the additional taxes paid from the related income, and thereby reduce their US tax bill. The separation of creditable foreign taxes from related income will now be prevented generally by deferring the right to claim credits until the related income is included in US taxable income.

The new regulations in the Notice will apply to foreign income taxes paid on or after September 15, 2016.

TAGS: tax | business | European Commission | law | corporation tax | tax credits | Internal Revenue Service (IRS) | ministry of finance | tax authority | multinationals | transfer pricing | United States | regulation | European Union (EU) | Europe | BEPS

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