Treasury Eyes Extraterritorial Taxes in Foreign Tax Credit Regs

The Treasury Department is focused on finding a “principled” way to deal with novel extraterritorial taxes like digital services taxes as it considers changes to its foreign tax credit rules, a Treasury official said Wednesday.

The foreign tax credit rules that Treasury issued in late 2021 barred companies from receiving US credit for DSTs—taxes that many countries had unilaterally imposed to capture revenue from companies that had customers there but no significant physical presence. But many taxpayers complained that the new rules were too harsh and that they disqualified other taxes that had previously been eligible. Treasury is temporarily allowing ...