Foreign Tax Credit - Deemed Paid FTC

Deemed Paid FTC

Some countries grant FTC to corporations owning shares of a foreign corporation when the shareholder receives a dividend or other deemed income (e.g., under controlled foreign corporation provisions) based on the dividend payor's taxes and income. Under such systems, generally the amount of credit is the foreign taxes paid by the foreign corporation times the fraction of earnings distributed to the shareholder as a dividend. Generally, the amount of dividend is "grossed up" for the amount of available credit, before limitations, effectively charging the shareholder with home country tax for the income on a pre-tax basis. The deemed paid credit mechanism may be applied up the chain of corporate distributions, and may be subject to ownership limitations.