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September 19, 2022

IRS provides guidance on applying noncompulsory payment rules in FTC regs to amended tax decrees between MNEs and Puerto Rico tax authority

In Notice 2022-42, the IRS addresses how the noncompulsory payment rules in the foreign tax credit regulations (see Tax Alert 2022-0040) apply to amended tax decrees between multinational entities (MNEs) and the Puerto Rico tax authority. The notice "assures taxpayers" that the IRS will not view a change to an existing decree made before December 31, 2022 that results in the imposition of lower Puerto Rico taxes than would apply without the decree "as resulting in noncompulsory payments." The goal of the notice is to provide certainty and "aid Puerto Rico's transition away from the excise tax and modified [effectively connected income] tax, which will no longer be creditable" beginning in 2023.