Proposed regulations provide guidance on foreign tax credit rules

November 23, 2022

By Martha Waggoner

Treasury issued proposed regulations (REG-112096-22) relating to the foreign tax credit (FTC) on Friday, including revisions to the reattribution asset rule for purposes of allocating and apportioning foreign taxes, the cost recovery requirement, and the application of the source-based attribution requirement to withholding tax on royalty payments.

Reattribution asset rule

The 2022 FTC final regulations provide rules for allocating and apportioning foreign income tax arising from a disregarded payment. Regs. Sec. 1.861-20(d)(3)(v) characterizes a disregarded payment under federal income tax law for purposes of assigning foreign gross income to various statutory and residual groupings.

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