The Foreign Tax Credit and U.S. Energy Policy

The foreign tax credit allows U.S. corporations to credit a portion of their foreign income taxes paid abroad against their U.S. income tax liability on this income. The oil and gas industry claims the greatest portion, about 75 percent, of the total foreign tax credit. To counter perceived inequities in the tax treatment of U.S. oil companies, Congress has made several changes to the credit which have restricted its use by the industry. GAO attempted to determine: (1) whether the foreign tax credit, as it currently works, hinders, promotes, or is neutral with regard to achieving the goals of reducing U.S. oil imports and diversifying the sources of imported oil; (2) what alterations to the credit might be required to make tax law more consistent with the attainment of these energy goals; and (3) if it is possible or advisable to use the credit as a tool of U.S. energy policy.