Gunster international tax attorney Alan Lederman, of the firm’s Fort Lauderdale office, wrote an article recently about foreign tax credits in relation to deep-sea mining licenses and related fees. It will be published in the December 12, 2014, issue of Bloomberg BNA’s Tax Management International Journal: “Will foreign tax credits be lost at sea?” (subscription required). What follows is a summary of the article.
The International Seabed Authority is in the process of preparing regulations specifying the payments to be required from foreign companies for deep-sea mining concessions. Some experts estimate that in the long term, mining concessions granted by the authority may produce trillions of dollars of minerals, so these ISA regulations may eventually have a large economic impact.
For U.S. parent companies of foreign mining subsidiaries that engage in ISA-licensed deep-sea mining, a crucial question is whether the IRS will allow these U.S. parent companies to claim an income tax credit for the amounts charged by ISA to those foreign mining subsidiaries.
If the IRS does not allow an income tax credit, the same earnings these U.S. parent companies receive from foreign mining subsidiaries may in effect be subject to double taxation: once by the ISA and once by the IRS.
However, under existing U.S. tax law (as Lederman discusses in his law review article), the IRS is unlikely to concede an income tax credit for the payments required by ISA.