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Typically, to receive the FTC, the U.S. taxpayer must have actually paid the foreign tax. But there is an exception to this rule. If a U.S. corporation has a subsidiary, then it (the subsidiary), rather than the U.S. taxpayer pays the tax. In this scenario, to avoid double tax on foreign income, the U.S. government allows the U.S. parent to claim a deemed paid foreign tax credit. See IRC §902. This is a credit for the amount of the dividend the subsidiary (actually) pays to the parent that is attributable to the subsidiary’s foreign earnings. However, this deemed FTC is available only to shareholders possessing 10% or more of the shares.
