Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘ATI’

US Sec. 163(j): Guidance/complexity

The IRS recently released Proposed Regulations on Section 163(j): an interest limitation that is applicable for the calculation of Global Intangible Low-Taxed Income (“GILTI”) under the US Tax Act (“TCJA”).  A copy of the Proposed Regulations are provided for reference, highlighting some areas of clarity/surprise.  Comments are due within 60 days of publication in the Federal Register, with a public hearing set for Feb. 25, 2019.

  • Former Proposed Regulations for Sec. 163(j), never finalized, are withdrawn
  • Proposed Regulations may be elected for 2018
  • General rule-Same as C corp; election (alternative method) for a CFC group
  • One limit for a consolidated group (affiliated, non-cons. group, or partnership n/a)
  • Adjusted Taxable Income (“ATI”) requires an adjustment for:
    • Capitalizable Sec. 263A costs re: inventory/sales  
    • sales/dispositions of certain property
    • Sec. 78 gross-up, Sec. 951(a) Subpart F, Sec. 951A GILTI, Sec. 250(a)(1)(B) deduction, without regard to Sec. 250(a)(2) limitation, related to GILTI
  • Upper tier CFC members include “excess interest” of lower tier CFC’s
  • Further guidance re: ordering of Code provisions, including BEAT, will be issued
  • A “new” definition of interest is provided, including:
    • Sec. 1275(a) and Reg. Sec. 1.1275-1(d) instruments
    • Factoring income
    • OID
    • Accrued market discount
    • Guaranteed payments of Sec. 702(c)
    • Income/loss re: hedges of interest-bearing assets/liabilities
    • Swaps, separated into a loan and payment swap (collateralized swap n/a)
    • Commitment fees
    • Debt issuance costs
  • Anti-avoidance rule
  • Sec. 382 attribution for pre/post-change periods
  • Sec. 381 includes the attribute for disallowed interest expense carryovers
  • No effect on E&P
  • Sec. 163(j) limit at partnership level
  • Intercompany CFC debt is included as interest income and expense, thus resulting in a net -0-; other debt will be a net adjustment to be allocated to separate CFC’s
  • New Form 8990 will be required

The most contentious items, as noted in recent days, are the adjustment of Sec. 263A depreciation (thus a factory does not add back depreciation in EBITDA), add back of Sec. 78, Sec. 951(a), Sec. 951A as reduced by the relevant Sec. 250 amount, complexity including excess ATI adjustments, and the new definition of interest, which includes interest equivalent instruments/transactions that will be included as a potential limitation.

The 439 pages require several readings for a general comprehension, aided by webinars and summaries from various advisory firms.

https://www.irs.gov/pub/irs-drop/REG-106089-18-NPRM.pdf

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