Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

Question

Quizplus · Accepted Answer

In situation B, where Country X operations are conducted through a foreign subsidiary that paid no dividends and has no GILTI (Global Intangible Low-Taxed Income) or Subpart F income, Galaxy would not be allowed a foreign tax credit for income taxes paid to Country X. This is because the U.S. tax system generally allows a foreign tax credit to prevent double taxation on foreign income that is brought into the U.S. tax system either through dividends or inclusion under GILTI or Subpart F income rules. Without such dividends or income inclusions, the taxes paid to Country X would not be creditable against U.S. taxes.

Galaxy Corporation Conducts Business in the U