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New FTC Proposed Regulations: Initial FORsights™ & Implications

Treasury has released proposed regulations related to the foreign tax credit in response to final regulations published earlier this year. Read on for details.
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On November 18, 2022, proposed regulations (Proposed Regulations) were released by the U.S. Department of the Treasury (Treasury) related to the foreign tax credit (FTC) in response to final regulations published on January 4, 2022, as amended by technical corrections published on July 27, 2022 (the Final Regulations). As noted in the preamble of the Final Regulations, Treasury provided for revisions designed to ensure that a foreign tax is a creditable net income tax only if the determination of the foreign tax base conforms in material aspects to the determination of taxable income under the Internal Revenue Code (Code). The Proposed Regulations clarify the definition of a reattribution asset for purposes of allocating and apportioning foreign income taxes by statutory grouping and modify certain provisions in the Final Regulations regarding creditability of a foreign income tax, mainly with respect to (1) the application of the cost recovery requirement to the net-gain rule and (2) the application of the source-based attribution requirement to withholding taxes on certain royalty payments. The applicability dates of the provisions included in the Proposed Regulations vary but would generally allow taxpayers to apply the Proposed Regulations to all foreign income taxes subject to the date of the Final Regulations.

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