Perhaps the best reconciliation of the many conflicting policies underlying the foreign tax credit would be to give preferential treatment by tax treaties to investment income from those areas where our foreign policy dictates that investment should be encouraged, whereas taxes imposed on income from other areas should be handled by the deduction approach. Thus the loss of revenue through investment in heavily industrialized areas (with stable governments and relatively little risk-taking) with high tax rates would end, but there would exist the flexibility, through treaties, to encourage investment in underdeveloped areas.
Stanley L. Ruby,
Characterization of an Income Tax for the Purpose of the Foreign Tax Credit,
14 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol14/iss4/27