How can foreign tax credits impact a business?
Legislation enacted in August 2010 incorporates international reform measures, many of them focused on foreign tax credits. In a move to limit the use of foreign tax credits by U.S. corporations with foreign operations, corporations will no longer be able to split creditable foreign taxes from the foreign income they are associated with. This provision applies to foreign income taxes paid or accrued in tax years beginning after Dec. 31, 2010.
The legislation also ended the foreign tax credit for covered asset acquisitions. Beginning after Dec. 31, 2010, corporations are prevented from claiming foreign tax credits when they engage in covered asset acquisitions such as qualified stock purchases or acquisition of an entity that is treated as a corporation for foreign tax purposes but as a noncorporate entity for U.S. purposes.
In addition, foreign tax credits claimed on a deemed dividend are limited to the amount that would have been allowed on an actual dividend, applicable to U.S. property acquired by a controlled foreign corporation after Dec. 31, 2010.
Finally, the 80/20 rules, applicable to U.S. corporations for which at least 80 percent of gross income is from a foreign source and is attributable to the active conduct of foreign trade, have been terminated. However, dividends and interest paid by existing 80/20 corporations are grandfathered in under the act.
How can an employer sort through all of these credits?
An experienced financial professional can assist in getting you the tax planning help you need through an experienced and knowledgeable CPA. Now is the time to talk with a financial professional to develop a comprehensive plan that maintains the flexibility to adapt to your company’s changing circumstances.
Deposit and loan products are offered by Associated Bank, N.A., Member FDIC and AB-C. Equal Opportunity Lender. Neither Associated Banc-Corp nor any of its affiliates give tax or legal advice. Please consult a financial, tax or legal professional for information specific to your situation.
Rod Murray is senior vice president and middle market leader at Associated Bank. Reach him at (312) 565-5271 or [email protected].
