Foreign Tax Credits: Proposed Regulations Explained

Summary

Update Alert: The IRS and Treasury have issued proposed regulations relating to the foreign tax credit, including 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 tax on royalty payments. See 87 Fed. Reg. 71271 (Nov. 22, 2022). The proposed regulations address the following issues: (1) the definition of a reattribution asset for purposes of allocating and apportioning foreign income taxes; (2) the application of the cost recovery requirement; and (3) the application of the source-based attribution requirement to withholding taxes on certain royalty payments.