International Tax Aspects of the Cuban ThawApril 22, 2016 | By Erik Lincoln
The IRS recently released and international tax ruling, Rev. Rul. 2016-8. The ruling removes Cuba from the list of countries to which Code §901(j)(1)(A) applies. Code §901(j)(1)(A) applies to any foreign country:
the government of which the United States does not recognize, unless such government is otherwise eligible to purchase defense articles or services under the Arms Export Control Act, with respect to which the United States has severed diplomatic relations, with respect to which the United States has not severed diplomatic relations but does not conduct such relations, or which the Secretary of State has, pursuant to section 6(j) of the Export Administration Act of 1979, as amended, designated as a foreign country which repeatedly provides support for acts of international terrorism.
When Code §901(j)(1)(A) applies to a country, taxes paid to the country cannot be claimed as credits in the U.S. under Code §§901, 902, or 960. In addition, generally all income earned by a controlled foreign corporation in such a country is Subpart F income.
With Cuba now removed (effective December 21, 2015) from the list of countries to which Code §901(j)(1)(A) applies, only the following countries remain: Iran, Sudan, and Syria. See Rev. Rul. 2005-3.