In the News

House Members Urge Treasury to Be Flexible on Foreign Tax Credit

Michael Rapoport, Bloomberg Tax

Washington, DC, May 2, 2022
Members of Congress urged the Treasury Department to be “mindful” of how new rules on foreign tax credits could hurt U.S. companies, and to work with them in implementing the much-criticized rules.

Treasury should issue guidance to help companies apply the new rules, and “continue its engagement with industry to inform its understanding of the potential downstream impacts,” the bipartisan group of 10 members of the House Ways & Means Committee said in a letter Friday to Treasury Secretary Janet Yellen.

The foreign tax credit rules, which Treasury issued in December, narrow the kinds of foreign taxes that companies can credit against their U.S. tax bills. Companies and tax practitioners have complained that some foreign taxes that have long qualified for the credit may no longer be eligible, and that the companies may be double-taxed as a result.

The members said they were particularly concerned about the potential impact the regulations could have on U.S. companies operating in countries that don’t have a tax treaty with the U.S. that could clarify whether certain taxes are eligible for the foreign tax credit. The U.S. doesn’t have tax treaties with most countries in South America, for instance.

Treasury has indicated it’s considering issuing clarification of the regulations. Guidance will be “critically important,” the members of Congress said, and in cases where it isn’t possible, Treasury should consider extending the implementation window for the rules, which took effect in March.

Treasury should also consider developing “safe harbors” to make clear that credits will be allowed for taxes that are clearly imposed on net income attributable to the taxing country, the members of Congress said.

The following members signed the letter: Reps. Bradley Schneider (D-Ill.), Kevin Hern (R-Okla.), Stephanie Murphy (D-Fla.), Drew Ferguson (R-Ga.), Ron Kind (D-Wis.), Jodey Arrington (R-Texas), Jimmy Panetta (D-Calif.), Ron Estes (R-Kan.), and Jackie Walorski (R-Ind.), as well as Del. Stacey Plaskett (D-V.I.)