Credits on attribution from company FIFs
Under the foreign tax credit system, a foreign tax credit may be allowed for a share of the foreign tax paid by a first tier FIF on its income and gains where:
- a resident company and the FIF are related companies, and
- the resident company has used the calculation method to decide the FIF income for the company's interest in the FIF.
In addition, a credit for tax paid by the second tier FIF may be given where the resident company:
- has used the calculation method to decide the FIF income of the second tier FIF
- the taxpayer and the first and second tier FIFs are companies, and
- the taxpayer is related to both the first and second tier FIFs.
In this case, a foreign tax credit may be allowed in accordance with the foreign tax credit system for a share of the foreign tax paid by the second tier FIF on its income and gains.
A credit will be allowed only where the resident company and the FIF or FIFs are related companies. This is consistent with the general treatment of foreign taxes paid on underlying income under the foreign tax credit system and is also consistent with the CFC measures.
Credits on distribution from corporate FIFs
The allowance of credits on distribution-that is, by way of a dividend-follows the credits allowed under the existing foreign tax credit system. In addition, you are allowed a credit where the dividend is exempt because the profits out of which the dividend has been paid have been subject to attribution in a previous year. The credit is allowed on a similar basis to the credit allowed where a dividend is assessable but is limited to the amount not already allowed as a credit at the time of attribution of the FIF income. [SECTION 160AFCJ]
Further, the provisions of the Act which allow for excess foreign tax credits to be carried forward for up to five years apply where excess foreign tax credits arise in relation to an interest in a FIF and, where appropriate, an indirect interest in a second tier FIF. As under the existing foreign tax credit system, there is no carry back of credits. [SECTION 160AFE]