The Requirement for U.S. Creditability under the Voluntary-Tax Rules in 901 in Relating to Subsidiary's Tax Assessment Result in Korea

This study provides an analysis of the items to be considered during a tax audit and tax planning process for a Korean subsidiary of a multinational company when its headquarters has allowance for foreign tax credit under the U.S. tax regime. Pursuant to U.S. Treas. Reg. §1.901-2(e)(5), U.S. Taxation adopts the foreign tax credit method and the deduction method to avoid double taxation. However, the amount subject to foreign tax credit among foreign taxes is limited to the extent to which a taxpayer made an effort to reduce tax liabilities. Accordingly,the U.S. tax law states that if a foreign subsidiary pays more taxes than required tax liabilities, the excess payment is regarded as a noncompulsory tax payment which is not subject to foreign tax credit. Specifically, the regulation suggests the following requirements：ⅰ)reasonable interpretation and application of foreign law, and ⅱ) tax appeals of all effective and practical remedies. In summary, the result of this study showed that it would be inevitable to make a thorough study how the application of foreign tax paid credit system is considered during the tax planning procedure in the light of the multinational companies, how the application of U.S. Treas. Reg. §1.901-2(e)(5) that is recently revised influences on the tax planning activities for those companies. Second, it is critical to recognize the implication how this application of U.S. Treas. Reg. §1.901-2(e)(5)influences on the tax appeal activities of the Korean subsidiaries against the tax authorities in Korea, the importance and need for foreign affiliates to participate in the global tax planning for the review of pre-assessment on the tax audit is arising.