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Treasury Department Clarifies Foreign Tax Credit Regs

August 03, 2022

Treasury Department Clarifies Foreign Tax Credit Regulations
The Treasury Department issued two sets of technical corrections on foreign tax credit regulations in an effort to address concerns over the new rules. The technical corrections aimed at relieving fears that a cost recovery provision was too restrictive and could make some of the foreign taxes ineligible for the credit, causing double taxation. For example, the corrections expanded the ways in which a foreign disallowance can correspond to U.S. law to make the foreign tax credit available. Also, the Treasury Department announced a new proposed rule to address when royalty withholding taxes qualify for the foreign tax credit would be issued later this summer to offer a safe harbor on royalty withholding taxes. (See prior coverage).

Appeals Court Upholds Penalty for Willful Foreign Account Reporting Failure
A penalty for failing to report a foreign bank account was upheld by the U.S. Court of Appeals for the Third Circuit. The $1 million penalty was supported by credible evidence that the account holder’s reporting failure was willful because the account holder only began to cooperate with the government regarding the foreign accounts after he was exposed for having hidden accounts. A willful foreign account reporting violation penalty amounts up to 50% of the assets in an unreported foreign account, while a non-willful penalty is capped at $10,000.

IRS To Review Dividends Received Deduction Rules
The Internal Revenue Service (IRS) is working on dividends received deduction guidance, according to an agency official who spoke at an International Tax Institute webinar. The IRS will determine the appropriate guidance regarding the dividends received deduction under Code Section 245A. The 245A dividends received deduction rule, which was enacted as part of the 2017 tax reform, allows U.S. taxpayers to receive foreign source dividends tax-free under certain circumstances.

OECD To Hold Public Consultation on Global Tax Deal
The Organization for Economic Cooperation and Development (OECD) will hold a public consultation on Sept. 12, 2022, to gather feedback on its latest draft of the global tax deal. The consultation will be held both in-person and virtually. The OECD previously released its latest draft rules on Pillar One of the global tax deal, under which the large multinational corporations will have to reallocate a portion of their profits to be taxed in a country where they make sales.

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

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