KPMG has made available for download their article, “Proposed foreign tax credit regulations”, which discusses additional guidance relating to the foreign tax credit (FTC). The abstract is as follows:
On November 18, 2022, the U.S. Treasury Department and IRS (collectively, “Treasury”) released proposed regulations [PDF 371 KB] (REG-112096-22) (“2022 Proposed Regulations”) that provide additional guidance relating to the foreign tax credit (“FTC”). The 2022 Proposed Regulations include guidance with respect to the reattribution asset rule for purposes of allocating and apportioning foreign taxes, the cost recovery requirement, and the attribution rule for withholding taxes on royalty payments. These 2022 Proposed Regulations would, if finalized, supplement and revise final regulations [PDF 1.2 MB] (T.D. 9959, and the “Final Regulations”) as published in the Federal Register on January 4, 2022, and associated correcting amendments [PDF 252 KB] and second set of correcting amendments [PDF 225 KB] published in the Federal Register on July 27, 2022. Read a January 2022 report [PDF 1.5 MB] prepared by KPMG LLP that provides a discussion and initial analysis of the 2021 Final Regulations. The 2022 Proposed Regulations were filed with the Federal Register on November 18, 2022 and are scheduled to be published in the Federal Register on November 22, 2022.
The revisions in the 2022 Proposed Regulations that relate to the reattribution asset rule are proposed to be applicable to tax years that end on or after the date the final rules adopting these provisions of the 2022 Proposed Regulations are filed with the Federal Register. However, taxpayers may choose to apply the modified rules, once finalized, to tax years that begin after December 31, 2019, provided that they apply the rules consistently to their first tax year beginning after December 31, 2019, and any subsequent tax year ending before the date the final regulations adopting the rules are filed with the Federal Register.
The revisions in the 2022 Proposed Regulations that relate to the cost recovery requirement or the attribution rule for withholding taxes on royalty payments are proposed to be applicable to foreign taxes paid in tax years ending on or after November 18, 2022. However, taxpayers have some optionality in applying the attribution requirement for royalty payments or the cost recovery rules, once finalized, to short tax years ending earlier if the rules are applied consistently in each category. Taxpayers may choose to rely on either or both portions of the rules addressing the cost recovery requirement (Reg §1.901-2(b)(4)(i) and (iv), once finalized) and the attribution requirement for royalty payments (Reg §1.901-2(b)(5)(i)(B)(2) and (d)(1)(iii) and Reg §1.903-1(c)(2) and (d)(3), (4), and (8) through (11), once finalized) for foreign taxes paid in short tax years beginning on or after December 28, 2021, and ending before the effective date of final regulations adopting these rules provided that they apply those rules consistently.
To see the full article, click: “Proposed foreign tax credit regulations”
Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.