15 Int'l Tax J. 3 (1989)

handle is hein.journals/intaxjo15 and id is 1 raw text is: Dividends From Noncontrolled
Section 902 Corporations:
Putting the Eggs Into
Too Many Baskets
WILLIAM G. DAKIN*
The United States has always asserted jurisdiction to tax income earned
by its nationals anywhere in the world. However, income taxed by the
United States may also have been taxed by other countries. Double taxa-
tion has been avoided by permitting U.S. taxpayers to credit foreign income
taxes against their liability for U.S. income tax.O The credit is given both
for taxes that the U.S. taxpayer paid directly and, in the case of corporate
taxpayers, for taxes paid by foreign corporations in which the U.S. corpo-
ration owns at least 10% of the stock.2
Since the United States has the primary right to tax income from sources
within the United States, the amount of foreign tax that may be credited
against U.S. tax cannot exceed the amount of U.S. tax on income from
sources outside the United States.3 With minor exceptions, prior to the
ax Reform Act of 1986 (TRA '86) all foreign-source income from the active
conduct of trades or businesses was aggregated in calculating the limita-
tion, as follows:
Taxable income from sources
without the United States
x U.S. tax = limitation on credit
Entire taxable income
TRA '86 fragmented foreign-source income into numerous categories
or baskets and prohibited U.S. taxpayers from crediting foreign taxes
paid on any one basket of income against U.S. tax due on any other basket
of income.4 The ability of U.S. taxpayers to credit foreign taxes, arising
from business operations that were taxed at rates above the U.S. rate,
against U.S. tax on business operations that were taxed at rates below the
U.S. rate, was sharply curtailed. The objective, and the result, is to impose
*William G. Dakin is a Supervisory Thx Counsel at Mobil Corporation. He holds an LLB
from Harvard Law School and an LLM in Thxation from New York University School of Law.

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