Foreign Tax Credit - Refunds and Adjustments

Refunds and Adjustments

Most systems require corrective action by taxpayers if the amount of tax previously claimed as FTC changes. Such changes could occur, e.g., because of carryback of deductions, losses, or credits in the foreign country, changes on examination of returns, etc. The form of corrective action varies by jurisdiction, and may vary within a jurisdiction by type of adjustment.

U.S. rules differentiate three forms of adjustment to foreign taxes: adjustments to taxes paid by the taxpayer which did reduce actual U.S. taxes paid, adjustments to taxes deemed paid which did not exhaust the pool of deemed paid taxes, and adjustments which did not reduce U.S. taxes yet. Taxpayers with the first type of adjustment must amend tax returns and pay or claim a refund for the difference in tax. Only corporate taxpayers can have the second type of adjustment. Those taxpayers must reduce the pool of taxes going forward and advise the government of the change. Taxpayers with the third type of adjustments must advise the government of the change and make appropriate adjustments to unused FTC carried over.