International Comity and the Foreign Tax Credit: Crediting Nonconforming Taxes

This article examines the workings and derivation of four specific and related features of the foreign tax credit: (1) The rules defining "the tax" for which a credit may be claimed; (2) The rules governing the extent to which the use of proxies for computed income destroys the classification of a tax as an "income" tax; (3) The rules limiting the ability to credit alternative or minimum taxes imposed in connection with an income tax; and (4) The rules governing the extent to which such nonconforming provisions of foreign law may be treated as a creditable tax "in lieu" of an income tax. The conclusions suggested by this examination are that the United States foreign tax credit is in fact unduly narrow and that this scope is unnecessary to accomplish any legitimate objective of the credit. Accordingly, the scope of the credit should be expanded, largely by restoring the regulatory rules that prevailed prior to the aggressive reinterpretations that occurred in the 1970s.