International Tax

Indirect Foreign Tax Credits (Portfolio 902)

  • This Portfolio contains a detailed analysis of §960, under which a domestic corporation that is taxed on earnings and profits of a controlled foreign corporation under §951 may be deemed to have paid foreign income taxes paid by the foreign corporation.


The Bloomberg Tax Portfolio, Indirect Foreign Tax Credits examines the election provided by §962 under which a noncorporate domestic shareholder may take advantage of the §960 credit. The Portfolio also examines other special situations in which an indirect credit may arise: when a U.S. shareholder sells stock in a controlled foreign corporation and the gain is recharacterized as a dividend under §1248; when a U.S. shareholder is deemed to receive a dividend in a reorganization or other transaction covered by §367(b); when a U.S. shareholder is taxed on income of a passive foreign investment company; and when a U.S. shareholder receives certain distributions from a DISC or a FSC.

The Portfolio examines in detail the interrelationship of the indirect credit rules and the §904 limitation on the foreign tax credit. The Portfolio also examines the rules of §78, which requires a U.S. shareholder to gross up a dividend or §951 inclusion from a foreign corporation by the amount of foreign taxes deemed paid. Finally, the Portfolio examines the effect on indirect foreign tax credits of §482 adjustments and refunds or redeterminations of foreign tax.

Table of Contents

I. Overview of Indirect Foreign Tax Credits
II. Indirect Credit Under § 902
III. Indirect Credit Under § 960
IV. Section 960 Credit for Individuals: Section 962
V. Indirect Credit Under § 1248
VI. Indirect Credit Under § 367(b)
VII. Indirect Credit for Passive Foreign Investment Company (PFIC) Taxes
VIII. Indirect Credits for Export Subsidiaries
IX. Coordination of Indirect Credits with § 904
X. Dividend Gross-Up Under § 78
XI. Collateral Issues

David Sotos
David Sotos
Principal, National Tax Services
Martin Collins
Tax Partner
Micah Gibson
Micah Gibson
International Tax Director
Prae Kriengwatana
Prae Kriengwatana
International Tax Director, WNTS