Flag Day Surprise: New Proposed Regs on GILTI, Subpart F Include Surprises

On “Flag Day,” June 14, the Internal Revenue Service (IRS) and the Treasury Department issued articles of guidance under the Tax Cuts and Jobs Act of 2017 (TCJA), which includes final, temporary, and proposed regulations (referred to as “Regulations”).

The Regulations’ key features include:

• GILTI (Global Intangible Low-Taxed Income) High-Taxed Income Exception

• The proposed regulations redefine the income that can be excluded from tested income at the election of the U.S. shareholders of a Controlled Foreign Corporation (CFC). This includes income earned by a CFC, subject to an effective rate of foreign income tax (at least 90% of the U.S. corporate rate).

• Aggregate Treatment of Domestic Partnerships and S Corporations for Subpart F & GILTI Purposes

• The proposed regulations substantially change the tax treatment of domestic flow-through entities (partnerships and S-corporations) that own interests in CFCs.

• Interaction of Section 245A with Subpart F Income and GILTI

• Section 245A generally allows a dividends received deduction when dividends are paid by foreign corporations to a U.S. corporate shareholder that owns 10% or more of the stock of the foreign corporation. Treasury issued Temporary Regulations (T.D. 9865) to deny the benefit of section 245A in a limited set of transactions in which section 245A might be used, in Treasury’s view, to avoid U.S. tax.

With the Regulations covering a wide variety of topics, you will be affected if you are a/an:

U.S.-based multinational organization

Private equity fund

U.S. partnerships that own foreign corporations

The features above are just a few items in the regulations released on Flag Day. Alvarez & Marsal Taxand’s International Tax practice addresses clients’ needs, be it federal tax, financial & tax reporting, real estate, tax advisory, transfer pricing, or valuation tax. Our team has the extensive experience and the strategic know-how to help clients navigate the complex, challenging, and always changing international tax landscape.
Stay tuned for future insights on the new rules and other content included in the Regulations.

To learn more about our global team & services, visit: https://www.alvarezandmarsal.com/expertise/tax