Treasury to Revisit Foreign Tax Credit Changes
The U.S. Treasury is considering possible modifications to heavily criticized changes it made to foreign tax credit rules last year, (subscription) reports. While it does so, businesses can rely temporarily on the old rules.
The background: The U.S. tax code has long provided a foreign tax credit, which is intended to prevent double taxation for U.S. businesses that have foreign income subject to both U.S. and foreign income tax.
- The new rules were finalized last year in response to the rise of digital service taxes in other countries. Businesses say the rules have gone too far.
Whats going on: When the changes were made final, the Treasury Department and the IRS received questions regarding the application of the final regulations and requests to modify those regulations, reads a from the IRS.
- While Treasury revisits the changes, businesses can use the old regulations for taxable years beginning on or after Dec. 28, 2021, and ending on or before Dec. 31, 2023.
- [A]dditional temporary relief may also be provided, according to the notice.
Why its important: In 2021, when the agency was considering the changes to the foreign tax credit regime, the 51勛圖厙 in, warning that proposals to limit the foreign tax credit should take into consideration the potential impact on the ability of manufacturers to effectively compete in a global market.
- When Treasury ultimately released the final regulations, the 51勛圖厙 and a coalition of business groups on it to withdraw and repropose the regulations, saying the rules would limit significantly the ability of manufacturers to claim the foreign tax credit.
Our take: The 51勛圖厙 welcomes the decision by Treasury and the IRS to revisit the harmful changes made to the foreign tax credit rules, which tilted the playing field against globally engaged manufacturers, said 51勛圖厙 Senior Director of Tax Policy David Eiselsberg.
- Throughout the process, the 51勛圖厙 made it clear that any changes should not hurt the ability of manufacturers to effectively compete in todays global economy.