Foreign Corporation Earnings and Profits (Portfolio 932)


Daniel Lange


Deloitte Tax LLP


Michael Layden

Partner, International Tax Services

Deloitte Tax LLP

Richard A. Gordon

Tax Principal (retired)

Deloitte Tax LLP


Timothy Pronley


Deloitte Tax LLP

At a glance

I. Computation of Earnings and Profits
II. Accounting for Earnings and Profits
III. Application of Earnings and Profits


Determining a foreign corporation's E&P is essential in many transactions, because E&P often controls the result of such issues as the amount of income recognized, the character of such income, the timing of recognition, and whether and to what extent a foreign tax credit is available. Bloomberg Tax Portfolio, Foreign Corporation Earnings and Profits, describes how to compute post-1986 Tax Reform Act E&P under the functional currency method, the U.S. dollar approximate separate transactions method, and the U.S. dollar separate transactions method, and how to compute pre-1986 Tax Reform Act E&P under the §902 method, the partial §964 method, and the full §964 method.

The discussion includes the effect of blocked E&P, the foreign corporation's tax accounting methods and elections, the corporation's taxable year, and foreign currency translation. The Portfolio also discusses accounting aspects of E&P, including (1) layering and pooling; (2) maintaining separate baskets of E&P; (3) source of E&P; (4) the effect of distributions, including distributions of previously taxed income; (5) the looknthrough rules for controlled foreign corporations; (6) the effect of tax redeterminations and adjustments; and (7) reporting and recordkeeping requirements.

The Portfolio then analyzes the application of the E&P rules to: (1) the indirect foreign tax credit under §§902 and 960; (2) the E&P limitation on subpart F income; (3) investment in U.S. property by controlled foreign corporations; (4) sales or exchanges of foreign corporation stock subject to §1248; (5) reorganizations and incorporation transactions subject to §367; (6) §338 elections by foreign corporations; (7) passive foreign investment companies; and (8) §864(e) asset based interest expense allocation.

A detailed case study in the Worksheets illustrates the principles described in the Detailed Analysis.

Request pricing

Subscribe to Bloomberg Tax to read the full portfolio. Already a subscriber? Login.

This site is protected by reCAPTCHA and the Google Privacy Policy, and Terms of Service apply.

By submitting my information, I agree to the privacy policy and to be contacted about Bloomberg Industry Group products and services.

View all portfolios