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TAX TRENDS
Analysis of and reflections on
recent cases and rulings.
Author: These CFCs held assets that generated
James A. Beavers, CPA, CGMA, Foreign Income & Taxpayers foreign-source income; and some of
J.D., LL.M. the CFCs also held assets that gener-
Foreign tax credit requires ated U.S.-source income. AptarGroup
consistency remained the direct owner of five CFCs
Under the consistency rule in Temp. after the restructuring.
Regs. Sec. 1.861-9T(f)(3)(iv), for For 2014, AGH Lux apportioned
For foreign tax purposes of calculating its foreign tax its interest expense under the modified
credit, a taxpayer could not use the asset gross income method. AptarGroup, in
credit purposes, a method to characterize the shares it determining the amount of its foreign
corporation must use held in a controlled foreign corporation tax credit, characterized its stock in
(CFC) because the CFC used the mod- AGH Lux using the asset method.
the same method to ified gross income method to apportion AptarGroup claimed a foreign tax
characterize shares its interest expense. credit of $3.54 million on its 2014
tax return.
in a controlled foreign Background
corporation (CFC) Before a restructuring of its foreign Foreign tax credit
subsidiaries in December 2014,
The United States subjects its citizens
that the CFC used to AptarGroup Inc. directly owned 100% and domestic corporations to tax on
of AptarGroup Holdings, a French their worldwide income. To prevent
apportion its interest entity (AGH France), which was a double taxation, a domestic corporation
expense; taxpayer’s global holding company for most is allowed a credit for foreign tax paid
of AptarGroup’s foreign subsidiar- under Sec. 901 and a credit for foreign
health may have been ies. AptarGroup owned, directly or taxes deemed paid or accrued under
the reason for sale of indirectly, 42 CFCs and also directly Sec. 960.
owned stock in other foreign corpora-
However, the foreign tax credit a
personal residence, tions that were noncontrolled foreign taxpayer may take is limited to prevent
corporations under Sec. 902 (before taxpayers from using foreign tax to
but the issue may not its repeal by the law known as the Tax reduce U.S. tax on their U.S.-source
be material to whether Cuts and Jobs Act, P.L. 115-97). In the income. The foreign tax credit limita-
restructuring, AptarGroup transferred tion (FTC limitation) is calculated by
taxpayers are entitled ownership of substantially all of its multiplying the taxpayer’s total U.S. tax
to an exclusion of foreign subsidiaries, including AGH on worldwide income by a fraction with
a numerator of the taxpayer’s foreign-
France, to AptarGroup Global Holding,
gain on the sale. a Luxembourg holding company (AGH source taxable income and a denomina-
Lux). Afterward, AptarGroup wholly tor of the taxpayer’s worldwide taxable
owned AGH Lux, which in turn wholly income. Where a taxpayer has more
owned, directly and indirectly, 32 CFCs. than one category of income as listed
46 June 2022 The Tax Adviser
