US Released Proposed Regulations Under GULTI Regime Implementing International Tax Reform Changes

; posted on
September 18th, 2018

The US Department of Treasury and Internal Revenue Service (IRS) proposed new rules under the global intangible low-taxed income (GILTI) regulations, together with amendments under §951, 1502 and 6038 which would affect United States shareholders of controlled foreign corporations (CFC).

GILTI Regime

Added to the Internal Revenue Code by the Tax Cuts and Jobs Act, §951A requires U.S. shareholders of any CFC for any taxable year to include in gross income their GILTI income for such taxable year. To determine the amount of GILTI to include in gross income (GILTI inclusion amount), the U.S. shareholder first calculates certain items of each CFC the shareholder owns, such as tested income, tested loss, or QBAI. A U.S. shareholder then determines its pro rata share of each of these CFC-level items similar to a shareholder’s pro rata share of Subpart F income. The GILTI inclusion amount is similar in certain respects to an inclusion of “subpart F income” under §951, but is determined and calculated on an aggregate basis.

The proposed Provisions

The proposed regulations under §951A provide guidance for U.S. shareholders to determine the GILTI inclusion amount, including the applicable general rules and definitions, the calculation of tested income and loss, the rules regarding QBAI and specified tangible property, what is included in specified interest expense, the treatment of domestic partnerships and their partners, and the treatment of the GILTI inclusion amount and adjustments to earnings and profits and basis. Under §951, the proposed regulations amend §1.951-1(e) to address certain avoidance structures the IRS has become aware of, which implicate §951A as well as §951. Besides, it sets out anti-abuse rules in respect of certain stepped up-basis transactions for purposes of the GILTI regime.

The proposed regulations are effective the date of publication of this document in the Federal Register. Any written or electronic comments and requests for a public hearing must be received by 60 days after that date of publication.

Sources: Internal Revenue Service

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