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
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.