November 29 2018

Proposed regulations issued on foreign tax credits

Source: IBFD Tax Research Platform News

On 28 November 2018, the US Treasury Department and the US Internal Revenue Service (IRS) released proposed regulations (REG-105600-18) on the determination of the foreign tax credit (FTC) under the various provisions of the US Internal Revenue Code (IRC).

The IRS also issued a News Release (IR-2018-235) dated 28 November 2018 to announce the issuance of the proposed regulations.

The proposed regulations provide guidance related to changes made by the Tax Cuts and Jobs Act (TCJA), which was enacted on 22 December 2017.

Those changes include:

  • the repeal of rules for computing deemed-paid FTCs on dividends on the basis of foreign subsidiaries' cumulative pools of earnings and foreign taxes;
  • the addition of two separate FTC limitation categories (baskets) for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income (GILTI) provisions; and
  • the modification of how taxable income is calculated for the FTC limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense.

The new FTC rules apply to tax years beginning after 31 December 2017.