Deductions for Foreign Tax – Dual Capacity


Energy - Fossil Fuels

Subsidy Type

Tax Expenditure

Committees of Jurisdiction

House Committee on Ways and Means, Senate Finance Committee

$438 FY 23 Budget Score (in mil.)
$55,367 FY 23-32 Budget Score (in mil.)

To prevent double taxation, current tax law allows U.S.-based corporations to receive a credit against their U.S. tax liability for the taxes they pay to foreign countries on income earned abroad—the Foreign Tax Credit (FTC). Special rules for claiming the FTC apply to companies called Dual Capacity taxpayers that pay a foreign levy and receive an economic benefit from the country, like access to government-owned natural resources. The portion of the foreign levy that a Dual Capacity company pays to receive the specific economic benefit is not eligible for a FTC. The Dual Capacity rules were developed in the 1970s and issued in 1983 to address the concern that royalties and other foreign levies were being disguised as income taxes on, specifically, oil and natural gas companies, allowing them to claim a larger FTC than other industries.

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