The Double Taxation Problem

When income is earned in one country by a resident of another, both countries may claim the right to tax it. Foreign tax credits (FTCs) and tax treaties are the primary mechanisms for preventing double taxation. The calculations are among the most complex in the tax code.

Foreign Tax Credit Calculation

FOREIGN TAX CREDIT ANALYSIS:

ENTITY: [US parent or CFC]
TAX YEAR: [Year]

FOREIGN SOURCE INCOME BY CATEGORY:
- General category income: $[X]
- Passive category income: $[X]
- GILTI category income: $[X]
- Foreign branch income: $[X]
- Treaty-resourced income: $[X]

US SOURCE INCOME: $[X]
WORLDWIDE INCOME: $[X]

FOREIGN TAXES PAID/ACCRUED:
[List by country, amount, income category, and whether
direct tax or withholding tax]

CALCULATE:
1. FTC limitation for each category:
   (Foreign source income in category / Worldwide income)
   × US tax liability