Consideration and Improvement on the Deemed Paid Foreign Tax Credit
Asian Tax Journal Vol. 14 No. 2 (2013), pp. 149-173
Abstract
Deemed Paid Foreign Tax Credit(DPFTC) is a system that approves the tax paid by subsidiaries located in foreign country as the tax paid by parent company located in the nation. And DPFTC let the tax be subtracted from the tax of parent company. This tax system helps domestic funds branch out to foreign countries by guaranteeing the neutrality of tax between going abroad in the form of branch(the direct investment) and moving overseas in the manner of equity acquisition(the indirect investment). This DPFTC was applied to the case of concluding a tax treaty in the early days. But it has been extended to a non－concluding case partially, and finally was reformed to give a full tax benefit whether a tax treaty was concluded or not at the end of 2011. This study meditated the meaning of DPFTC by reviewing the tax revising process, and tried to find the shortcoming and to look up the scheme of improvement on the clauses about the issue. This study shows that it is necessary to reform the clauses which state to grant 50% of tax benefit to the second tier subsidiaries. Because these clauses are not in accord with an aim of reformed tax provision that was drafted to allow the tax credit indifferently whether there is a tax treaty or not. And the clauses about DPFTC do not correspondence to the case of foreign countries. Therefore it seems desirable to revise the provisions about DPFTC so as to allow 100% of tax benefit to the second tier subsidiaries. It is needed to shorten the holding period of equity from ‘over 6 months’ to ‘over 3 months’ from the aspect of equitableness with the case of earnings exclusion on the dividend from domestic companies. Such improvements seem to be coincident with the basic purpose of DPFTC which increases the neutrality of capital investment. Another suggestion of this study is that DPFTC should be allowed to an individual. Because this allowance may increases the neutrality of capital on an overseas expansion and enhances the equality between a corporation and an individual.
Keywords
- deemed paid tax
- foreign tax credit
- reconciliation of dual taxation
- neutrality of investment
Related Articles
The Impact of the Regulations on Foreign Tax Credit on the Tax-Saving Accounts : Focusing on ISA and Retirement Pension Accounts
27(2) 327-358
Study on the Tax Strategy of a Cultural Contents Publisher33)
18(6) 53-83
An Improvement Plan on Tax－Exempt Entity Provisions in Pension Funds’Foreign Investment Management －Focusing on the US Tax Law Section 892－
18(1) 45-75
Consideration and Improvement about the Gift Tax on the Related Party Transactions
17(6) 227-248
Introduction of Territorial System for Taxing Foreign Dividends －Focus on Introduction of Territorial System in UK and Japan－
13(4) 87-124