Relief
from Double Taxation
Foreign Tax Credit
A US corporation is subject to tax on its income from foreign
sources as well as from US sources. A domestic corporation
may elect either to deduct or take a credit for foreign
income taxes paid or accrued during the year. If the corporation
elects to claim a credit, it cannot deduct its foreign
income taxes for that year. The foreign tax credit generally is limited to the US tax
on the corporation's foreign source taxable income. Foreign
taxes that cannot be currently credited may be carried back
two years and carried forward five years.
The foreign tax credit is also available to a US corporation
for a portion of the foreign taxes paid by a foreign corporation
in which it owns at least 10 percent of the voting stock
and which pays the US corporation a dividend. The foreign
tax credit is available to a US corporation for a portion
of the foreign taxes paid by a controlled foreign corporation
(a foreign corporation that falls within certain statutory
US ownership requirements) when such US corporation is required,
under the IRC, to include in its gross income certain types
of tax haven and other income earned by the controlled foreign
corporation, even where no distributions are made to the
US corporation.
The foreign tax credit is also available to a foreign corporation
for foreign taxes paid with respect to foreign source income
effectively connected with the conduct of a trade or business
within the United States, but the credit cannot be used to
offset the branch profits tax if such tax applies.
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information contained herein is of a general nature and
is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and
timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination
of the particular situation.
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© 2006 KPMG LLP, the
Canadian member firm of KPMG International,
a Swiss cooperative. All rights
reserved."
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