Final regs. determine amount of tax paid for purposes of the foreign tax credit.

• Author: Raglan, Hubert

The IRS and treasury became aware that taxpayers could enter into arrangements that could generate duplicative foreign tax credit benefits involving foreign withholding taxes imposed on distributions made by an entity to a U.S. party. For example, if the parties undertook a transaction in which interests in an entity are transferred by the U.S. party to a counterparty subject to a repurchase obligation, withholding taxes imposed on distributions from the entity could be claimed as creditable in both jurisdictions. To address this problem, the 2011 final regulations eliminated the exception for withholding taxes imposed on distributions or payments to U.S. parties. In addition, the 2011 temporary regulations introduced a new provision stating that a foreign payment attributable to income of an entity includes a withholding tax imposed on a dividend or other distribution (including distributions made by a passthrough entity or an entity that is disregarded as an entity separate from its owner for U.S. tax purposes)...