United States

Supreme Court refuses to overturn foreign tax credit case


On April 18, 2016, the U.S. Supreme Court let stand a Federal Circuit decision disallowing claims for refund related to foreign taxes paid because the taxpayer failed to file its claims within the statutory 10-year limitation period.

The Federal Circuit is the first appellate court to address this issue, and businesses paying foreign taxes need to be aware of the ramifications of the decision.

Generally, you must file a claim for refund within the later of three years from the time the return was filed or two years from the time the tax was paid. However, the Internal Revenue Code extends the refund limitation period to "10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued."

In this case, the taxpayer from 1997 through 2001 received interest from its Belgian subsidiary free of local withholding tax. However, the Belgian authorities later asserted the payments were subject to withholding tax, and the taxpayer paid the tax in 2002. In 2009, the taxpayer filed refund claims based on these foreign tax payments and the IRS disallowed the amounts relating to 1997 and 1998 because the claim was outside the 10-year statutory limitation period.

The IRS argued that the period begins in the year in which liability for the taxes arises and not the date on which the tax is paid, despite contrary language in the statute. The Federal Circuit agreed with the IRS, and the U.S. Supreme Court's refusal to hear an appeal leaves the circuit court's decision intact.

The decision could have a significant effect on the financial statements of taxpayers with accumulated foreign tax credits because it could result in a loss of credits. If your business pays foreign taxes, you should evaluate the impact of this decision immediately.

Ramon Camacho


Ramon advises businesses on international tax and capital markets issues, including withholding tax, inbound and outbound investment, and Treasury matters. Contact him at ramon.camacho@rsmus.com.

Areas of focus: International Tax PlanningWashington National Tax