Rev. Rul. 57-516

The term `amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year,' as used in section 901 of the Internal Revenue Code of 1954, relating to the allowance of a credit for taxes paid or accrued to a foreign country or possession of the United States, means such taxes proper, which are a legal and actual liability, paid or accrued during the taxable year by or in behalf of the taxpayer claiming such credit. The credit provided in section 901 of the Code is not based on tax withheld by a foreign country or possession of the United States during the taxable year, since tax withheld is merely an advance collection of what may or may not be an actual tax liability. In case of a tax refund, the net amount paid may be different from the gross amount withheld. See section 905(c) of the Code. Accordingly, income tax withheld at the source from dividends paid by a foreign corporation to a taxpayer referred to in section 901(b) of the Code may be claimed as a credit against such taxpayer's Federal income tax liability, within the limitations of section 904 of the Code, if such tax withheld represents a legal and actual tax liability. However, where a taxpayer, for a taxable year, elects to claim the standard deduction provided in section 141 of the Code, no credit for foreign taxes is allowable for such year. See section 36 of the Code. United States shareholders of foreign corporations should report, for Federal income tax purposes, the gross amount of dividends received from such corporations without reduction for withholding of the foreign income tax thereon. I.T. 2762, C.B. X111-1, 64 (1934).