Tax Court in Brief | AptarGroup, Inc. v. Comm’r | Foreign Tax Credits and Interest Expense Allocation and Apportionment

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Tax Litigation:  The Week of March 14, 2022, through March 18, 2022

AptarGroup, Inc. v. Comm’r, 158 T.C. No. 4 | March 16, 2022 |Goeke, J. | Dkt. No. 7218-2

Opinion

Short Summary: AptarGroup, Inc. (“Aptar”), a U.S. corporation, owned 100% of AptarGroup Holdings, an entity organized under the laws of France (“AGH France”). Aptar owned, directly or indirectly—through AGH France or a later-formed foreign holding company—controlled foreign corporations (“CFC”). The CFCs held assets that generated foreign source income, and some also held assets that generated U.S. source income. Aptar paid or accrued interest expense, and claimed a foreign tax credit of $3,539,543 with respect to similar taxes paid by the CFCs. The IRS disallowed the foreign tax credit. The issue presented to the Tax Court regards the apportionment of interest expense with respect to AptarGroup’s stock in CFCs for purposes of computation of foreign tax credit.

Primary Holdings:

Key Points of Law:

Insights:  This case illustrates the careful attention that a U.S. corporation taxpayer should put forth when allocating and apportioning interest expense for purposes of a foreign tax credits associated with ownership of shares in a CFC. Treas. Reg. § 1.861-9T, as supplemented by Treas. Reg. § 1.861-12T, should be closely evaluated and applied so that the consistency requirements applicable to elections for the foreign tax credit are met between or among the U.S. taxpayer and the CFCs.