Measuring a Company's Foreign Tax Credit Position

A number of authors have tried to discover how the residual U.S. tax on foreign corporate earnings (the U.S. tax after the foreign tax credit) affects business decisions. Some of them inferred the residual tax from data in the company's financial statement, whereas others used the residual tax reported in the company's income tax return. In the present study, we point out problems with both approaches. For instance, we show that in many cases, the two approaches yield different results for the same firm. We then compare the generally accepted measures of the residual tax with a third measure that, at least conceptually, should reliably reveal whether the company anticipates owing a residual tax for the year, after accounting for its ability to carry unused foreign tax credits over to prior or future years. We find that this third measure does not accord well with the commonly used measures of the company's foreign tax credit position. We believe that our results, therefore, draw into question the conclusions of the earlier studies that tried to capture the incentives imparted by the residual U.S. tax.

Author: U. S. Department Office of Tax Analysis

Publisher: Createspace Independent Publishing Platform

Publication Date: Jan 01, 2015

Number of Pages: 34 pages

Binding: Paperback or Softback

ISBN-10: 1505382254

ISBN-13: 9781505382259