Cite Foreign Tax Credit Presentation By Randy Free January 2011

Cite Foreign Tax Credit Presentation By Randy Free January 2011

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Cite Foreign Tax Credit Presentation By Randy Free January 2011 - Presentation Transcript 1. CITE: US International Tax Reporting & Compliance - 2011Computing Direct and Indirect Foreign Tax Credit BenefitsJanuary 24, 2011Randy FreePartner - International Tax ServicesGrant Thornton, LLPIrvine, CaliforniaTelephone: (949) 608- 5311randy.free@us.gt.com© Grant Thornton LLP. All rights reserved. 2. Circular 230 DisclosureTo ensure compliance with requirements imposed bythe IRS, any U.S. federal tax advice contained in thisdocument is not intended or written to be used, andcannot be used, for the purpose of (i) avoidingpenalties under the Internal Revenue Code or (ii)promoting, marketing, or recommending to anotherparty any transaction or matter that is contained inthis document.© Grant Thornton LLP. All rights reserved. 3. Learning objectives• Recognize the importance of foreign tax credit• Be aware of the key concepts regarding foreign tax credit Disclaimer: This presentation provides a high-level overview of the general rules relating to foreign tax credits. It should be noted that there are several special rules and exceptions in the Code and regulations that may apply and need to be considered that are not discussed.© Grant Thornton LLP. All rights reserved. 3 4. Agenda• Introduction• Source of income rules• Credit limitations• Indirect credit• Changes to FTC© Grant Thornton LLP. All rights reserved. 4 5. Introduction Foreign Tax Credit• The U.S. taxes its citizens, residents and domestic corporations on a world-wide basis, which can result in double taxation when the U.S. person is also taxed by another country• Generally, IRC § 901 allows: – Credit for foreign taxes paid or deemed paid by qualifying taxpayers – Taxpayers must elect
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the credit in lieu of deducting the taxes• The foreign tax credit is meant to minimize double taxation© Grant Thornton LLP. All rights reserved. 5 6. U.S. taxation without FTCU.S. Tax Return Foreign Country Tax ReturnForeign source income $1,000 Income $1,000Taxable income $1,000 Taxable income $1,000 x . 35 x .25U.S. income tax $ 350 Foreign income tax $ 250U.S. tax $350Foreign tax $250Worldwide tax $600Worldwide ETR 60.00% [$600/$1,000]© Grant Thornton LLP. All rights reserved. 6 7. U.S. taxation with FTCU.S. Tax Return Foreign Country Tax ReturnForeign source income $1,000 Foreign source income $1,000Taxable income $1,000 Taxable income $1,000 x .35 x .25U.S. income tax $ 350 Foreign income tax $ 250Less FTC < 250>U.S. tax after FTC $ 100U.S. tax $100Foreign tax $250Worldwide tax $350Worldwide ETR 35% [$350/$1,000]© Grant Thornton LLP. All rights reserved. 7 8. Double tax minimizationFTC does not eliminate double taxation in all cases because• Not all U.S. taxes are available to be reduced by the credit• Not all U.S. taxpayers qualify• Not all foreign taxes are creditable• FTC limitation restricts
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Cite Foreign Tax Credit Presentation By Randy Free January 2011

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