According to recent reports, U.S. Treasury Secretary Steven Mnuchin has asked Puerto Rico's government to prepare a proposal for the end of the IRS' acceptance of a foreign tax credit (FTC) for Puerto Rico's excise tax. The 4% excise tax was introduced by Puerto Rico under Act 154 in order to tax purchases by multinational companies from their CFCs in Puerto Rico because, under tax agreements with the island’s government, nearly all the income earned by CFCs of primarily U.S. multinationals is exempt from Puerto Rico’s corporate income tax. In 2011, the IRS issued a notice that it would not challenge FTC claims that the excise tax is a tax in lieu of an income tax under section 903 of the Internal Revenue Code and, therefore, eligible for FTC. However, allowing the excise tax for FTC purposes has never been strongly supported in the U.S. and changes made by the Tax Cuts and Jobs Act, in particular the GILTI provisions, has created a greater push for Treasury to end the FTC practice. It is uncertain when FTC for the excise tax will end, but given Secretary Mnuchin's request, Puerto Rico will apparently have some time to come up with a new solution.
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