IRS plans foreign tax credit rules

The Treasury Department and the Internal Revenue Service expect to issue proposed regulations to address the application of the foreign tax credit and related rules and the dual consolidated loss rules to certain types of taxes described in the GloBE Model Rules.

In Notice 2023-80, they said Monday they intend to issue proposed regulations to address the application of the FTC and related rules and the dual consolidated loss rules described in the Global Anti-Base Erosion Model Rules, which are part of the Pillar Two section of the Organization for Economic Cooperation and Development and G20 BEPS Project for addressing the tax challenges arising from the digitalization of the economy. 

The Global Anti-Base Erosion Rules aim to ensure large multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. The GloBE Rules provide for a coordinated system of taxation that imposes a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate..

The notice also extends and modifies the temporary relief described in the earlier Notice 2023-55 for determining whether a foreign tax is eligible for a foreign tax credit.

Some jurisdictions have enacted, and others have proposed, legislation to implement the new rules for fiscal years beginning on or after Dec. 31, 2023, and for the undertaxed payments rule, for fiscal years beginning on or after Dec. 31, 2024. The new notice mostly doesn’t provide guidance regarding the undertaxed payments rule, as the Treasury Department and the IRS are continuing to analyze issues related to it and plan to issue further guidance.