Corporation Taxation Foreign Tax Credit Research Paper

Corporation Taxation Foreign Tax Credit - Research Paper Example However, there are four tests which one requires in order to qualify for the foreign tax credit (Rousslang, 1). It follows that foreign tax credit cannot be more than a company’s tax liability multiplied by a certain percentage thus maximum allowable foreign tax credit. Carrying back of the foreign tax credit is a common practice especially when the credit is more than the maximum limit (About.com, 1). It is usually carried to the future or previous year depending on the situation. Credit for Foreign Income Taxes Irs.gov (1) reveals that income tax systems across the world are known to provide credit for similar income taxes that are usually paid to foreign countries. A limitation of credit is usually subjected to the kind of taxes which are of a similar nature to the taxed being credited. There are a number of rules that govern the eligibility of a tax credit. They include basis and nature of the levy; availability of a tax treaty between the two countries; form of payments; political influence; similarity of credit between the two countries; conditions relating to the levy and property or services that accompany the taxes. A typical example is the United States tax system which allows foreign tax credit on the basis of limitations. These limitations are usually in relation to compulsory levies on gross receipts or net income. The countries that require participating in boycotts are not awarded the credit. This exemption also applies to taxes that are subjected to services and goods according to the relevant taxing authority. In the UK, foreign tax credit is allowed on foreign tax similar to corporation tax; subject to limitations (Irs.gov, 1). This... This essay is the best example of comparison tax system of different countries. The United States tax system which allows foreign tax credit on the basis of limitations. These limitations are usually in relation to compulsory levies on gross receipts or net income. The countries that require participating in boycotts are not awarded the credit. This exemption also applies to taxes that are subjected to services and goods according to the relevant taxing authority. In the UK, foreign tax credit is allowed on foreign tax similar to corporation tax; subject to limitations. This situation is provided for in the respective tax treaties. Canada is known to limit the credit by way of deductions in relation to gas or oil businesses. A common observation has been that most tax systems across the world indicate the specific time when a foreign levy is eligible to receive credit. This has to be in accordance to the agreed requirements of the foreign tax credit. Rousslang further reveals that so me tax systems offer credit simply because the tax can be taxed according to the existing domestic tax system. Other systems offer the credit on the basis of the time when the particular foreign item is being subject to income tax requirements. Some tax systems offer credit on the basis of recognition in their financial statements. The government plays a vital role when it comes to developing tax treaties. It is therefore expected that various countries across the world have different methods of approaching this issue.