The Educations Jobs and Medicaid Assistance Act 2010 was signed into US law on 10 August 2010. The Act amends several provisions of the Internal Revenue Code to restrict tax credits and increase tax receipts. The following is a summary of several of the changes relating to foreign tax credits.
Foreign tax credit splitting
The Act restricts the ability of US taxpayers to recognise a credit for foreign underlying tax prior to recognising the income from receipt of the dividend. For taxable years commencing after 31 December 2010 where a ‘foreign tax credit splitting event’ occurs the foreign credit is not available until the tax year in which the dividend income is brought to account.
This measure appears aimed at companies taking advantage of the ‘disregarded entity’ regime whereby the US parent can make an election to treat itself and the foreign entity as a single...
