Soak-Up Tax Law and Legal Definition

SOAK-UP TAX is a tax or levy which is conditioned on the availability of a foreign tax credit in another country. A soak-up tax arises when a foreign tax would not be imposed on the taxpayer unless a credit is available for the tax under the laws of another jurisdiction.

However, a foreign levy is not considered a tax under U.S. regulations if the person or corporation subject to the levy receives, either directly or indirectly, a specific economic benefit from paying it.. Benefits include such items as property; services; fees and other payments; rights to use, acquire or extract resources; patents or other property owned or controlled by the foreign country.