July 28, 2023
Report on recent US international tax developments - 28 July 2023
The US government on 21 July 2023 released Notice 2023-55, announcing temporary relief for taxpayers seeking a foreign tax credit (FTC) by deferring key components of Reg. Sections 1.901-2 and 1.903-1, which were issued in December 2021 (TD 9959, 87 FR 276; FTC Creditability Regulations). For tax years ending on or before 31 December 2023, the Notice generally allows taxpayers to apply (1) the former regulations' more permissive standards for determining whether a tax was a creditable net income tax under IRC Section 901, and (2) the current IRC Section 903 "in lieu of" tax rules without regard to the attribution requirement.
Treasury has indicated that it will continue to analyze — and consider amendments to — the FTC Creditability Regulations. Treasury is also considering whether, and under what conditions, to provide additional temporary relief beyond the relief period.
Taxpayers finalizing their 2022 tax returns and certain 2023 fiscal-year tax returns should assess the impact of any additional credits, as well as adjustments for deemed paid credits, IRC Section 904 calculations, eligibility for (and the effects of) the Global Intangible Low-taxed Income (GILTI) and subpart F high-tax exceptions, and other matters.
No relief is granted for foreign taxes paid in tax years ending after 31 December 2023. Given the temporary nature of the relief, and uncertainty around whether and to what extent it will be extended, taxpayers must simultaneously assess the impact of continued application of the full FTC Creditability Regulations.
Notice 2023-55 did not grant relief for other aspects of the FTC regulations that continue to pose challenges for taxpayers. For example, the Notice offers no relief under Reg. Section 1.861-20, which provides complex rules for allocating and apportioning foreign taxes. Those rules pose significant compliance and interpretational issues in many common scenarios. Moreover, they can lead to surprising results, including the loss of FTCs in certain cases.
A Global Tax Alert provides details.
The IRS on 26 July released Revenue Procedure 2023-26, formalizing a fast-track process for certain private letter ruling (PLR) requests that are primarily or solely under the jurisdiction of the IRS Associate Chief Counsel (corporate). The new program, with two notable changes, replaces a pilot program for PLRs, established under Revenue Proc 2022-10, that has been in effect since January 2022.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor