Foreign Tax Credits

A foreign tax credit (FTC) is generally allowed for income taxes paid to foreign countries or U.S. possessions, provided the levy is a tax (not a payment for services) and is imposed on net income.

A tax qualifies as a net income tax if it:

• is triggered by a realization event,

• is based on gross receipts,

• allows recovery of significant costs, and

• applies to income with sufficient nexus to the jurisdiction.

Certain withholding taxes may still qualify if they effectively apply to net income. Taxes imposed in lieu of an income tax may also be creditable.

FTC is calculated separately across four income categories:

• Global intangible low-taxed income (GILTI)/net CFC tested income (NCTI)