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Treasury Clarifies GILTI Provisions with Proposed and Final Regulations

Posted by Richard Stepler on Jul 8, 2019 6:04:00 PM

In a blog posted last October, we provided details of a new tax on global intangible low-taxed-income, otherwise known as “GILTI.” In a nutshell, certain multinational U.S. corporations must now pay a tax on a percentage of previously deferred foreign earnings. GILTI income applies to foreign corporations owned 10 percent or more (directly or indirectly) by a U.S. corporation, or to U.S. shareholders in a controlled foreign corporation.

However, details on how to assess the tax owed were rather murky. Department of Treasury officials acknowledged the need to provide guidance on this complex new tax provision. On June 14, 2019, Treasury issued final regulations and proposed regulations to help affected taxpayers determine the amount of GILTI included in income.

Also included in the final regulations are rules for U.S. individuals who own stock through domestic partnerships, and rules regarding the way in which specific foreign tax credits should be treated for individuals who directly or indirectly own stock in foreign corporations.

The following includes some highlights of the final and proposed rules:

Final Regulations

  • Determination of a U.S. shareholder’s pro rata share of a controlled foreign corporation’s Subpart F income included in the shareholder’s gross income
  • Aggregation rule for domestic partnerships does not apply for purposes of determining whether a U.S. person is a U.S. shareholder, and whether a U.S. shareholder is a controlling domestic shareholder
  • Rules relating to U.S. individuals who own stock of foreign corporations through domestic partnerships with regard to determining GILTI
  • Foreign tax credit provisions for individuals who directly or indirectly own stock in foreign corporations
  • Clarifications of the pro rata share anti-abuse rule
  • Adjustments to basis related to net used tested loss

Proposed Regulations

  • Domestic partnership would be treated as an aggregate of its partners for purposes of determining its partners’ Subpart F income and Section 956 inclusions
  • GILTI high tax exclusion regarding a CFC’s gross income subject to foreign income tax at an effective rate that is greater than 90 percent
  • Treatment of income of CFCs that is subject to a high rate of foreign tax under section 951A

We will continue to keep you posted about additional Treasury guidance regarding GILTI and other international tax issues.

Questions about the GILTI revisions or other international tax matters? Contact Richard Stepler, CPA, at 972-818-5300 or use our contact form below.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: GILTI, Treasury Department