Treasury and the IRS released final regulations on 28 December 2021 (the ‘2021 Final Regulations’) addressing various aspects of the foreign tax credit (FTC) regime. The 2021 Final Regulations were published in the Federal Register on 4 January 2022, and represent the third set of final regulations that have been issued with respect to the core provisions of the US foreign tax credit regime following the 2017 Tax Cut and Jobs Act.
While the 2021 Final Regulations are effective on 7 March 2022, certain provisions are applicable to periods beginning before that date. The various applicability dates are discussed in the Insights below and summarized in the table at the end of the document.
The 2021 Final Regulations are among the most significant developments in the US FTC regime during its 100+ year existence, as they fundamentally change the definition of what is a creditable foreign income tax under Sections 901 and 903. The regulations are expected to reduce significantly the amount of FTCs that taxpayers may claim. Taxpayers should immediately re-evaluate each of the foreign taxes historically claimed as a creditable tax under the new regulatory framework to determine whether such taxes may continue to be claimed as a credit under Sections 901 or 903.
Please Register for the Tax Readiness webcast on 19 January to learn more about the impacts of the 2021 Final Regulations.