Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Sec 250’

US FDII Final Regs

The Final Reg’s for Section 250, used in FDII and GILTI calculations, have been finalized.  These Reg’s are now undergoing analyses in trying to understand the complexities and nuances.  Some highlights include:

  • The Final Reg’s are effective for tax years beginning on or after 1/1/2021, although they can be applied retroactively in their entirety
  • General relaxation of the FDII documentation requirements
  • Formal ordering rules for interaction with other Code sections are reserved in the Final Reg’s
  • Final Reg’s require deductions to be apportioned to gross DEI and gross FDDEI without regard to the limitations in Sections 163(j), 170(b)(2), 246(b) and 250k, that may cause a mismatch in the deductions allowable for taxable income
  • Final Reg’s apply the exclusive geographic apportionment rule of Treas. Reg. Section 1.861-17(b) for purposes of apportioning R&E expenses to gross DEI and gross FDDEI

The Final Reg’s provided additional clarity, although a taxpayer will have to consider  if the Proposed Reg’s or Final Reg’s will be favorable for tax years prior to 2021.

EY’s Tax Alert provides additional details, as referenced.

https://www.ey.com/en_gl/tax-alerts/us-final-fdii-regulations-retain-proposed-regulations-structure-but-reduce-documentation-burden-defer-effective-date-and-make-important-substantive-changes-to-the-computation-of-section-250-deduction

US: TCJA Reg chronology

Pending developments this year are focused on the Tax Cuts and Jobs Act (TCJA).

This week expectations – Final FTC Regs, final and proposed BEAT Regs

This year (maybe) – Final and proposed Sec. 163(j) Regs (currently at 550 pages)

This year/January 2020 – Sec 267A final and proposed Regs, Sec 863(b) sourcing proposed Regs

by June 30, 2020 – Final FDII regulations, GILTI high-tax exclusion, Sec 250 participation exemption

EY’s Global Tax Alert provides further details, including OECD developments reported on previously

Click to access 2019G_005186-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%2015%20Nov%202019.pdf

GILTI: Proposed Reg’s-partial answers

The proposed Reg’s provide some answers, such as calculating GILT on a consolidated approach, but has punted (subject to later guidance) on GILTI foreign tax credits, the Sec. 250 deduction which also is applicable for the FDII provision, definitive guidance on a separate GILTI basket (although noting its expectation) and application of Sec. 163j  re: interest expense.

Complex rules are set forth to determine a particular US shareholder’s portion of GILTI.  These rules were necessary as the separate shareholder approach was further clarified as a consolidated calculation which does alleviate unnecessary planning to accomplish that result.

Additionally, anti-abuse provisions were included to combat perceived abuse, some of which have already sparked heated controversy.  As an example, a CFC’s tested loss does not represent a loss carryover against future year’s tested income.  “Donut hole” planning initiated by many taxpayers has also been reversed by this guidance.

The guidance further confirms that each controlled foreign corporation (CFC)’s income calculation is to be based on the concept of a US tax return and principles approach.  Additionally, ADS depreciation is to be used regardless of the acquisition date of the foreign tangible property.

Practitioners will be absorbing this new complexity to change their calculations for Q3 Annual ETR calculations, while also finalizing the SAB 118 one-year period to finalize the Sec. 965 deemed repatriation tax provisions effective in Q4 2017 for a calendar-year taxpayer.   

Technical/practical articles and webinars have already started in earnest, as everyone is learning about these new rules simultaneously.

A reference to the proposed Regulations are included for reference.

Click to access reg-104390-18.pdf

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