The first set of final Regulations were recently issued; some changes include:
- Stock basis flexibility
- Right to have some changes in methods of accounting as “regarded”
- Clarification of ordering rules
- Elect to not disregard payments between SFC’s between measurement dates
- Including only actual Sec 956 inclusions for the “without” calculation
As the Regulations were issued in January, this set of Reg’s, as well as others to be issued by June 22, 2019, will be treated as having retroactive effect to the enactment date of December 22, 2017.
The latest US tax updates are summarized in EY’s Global Tax Alert, with a referenced link
- Tax Reform 2.0: House is moving forward with three separate bills, hoping at least one will pass, although Senate will not review prior to Nov. midterm elections
- GILTI: Additional rules re: interaction of Foreign Tax Credit and GILTI by Dec. 31, 2018 (It is hoped that the calculation of Sec. 163(j) interest limitations will be addressed re: application on a separate CFC basis, consolidated basis, or other method)
- GILTI: Final regulations June 2019
- IRS plans to establish separate webpages for the major international tax provisions enacted by the 2017 tax reform to provide informal taxpayer guidance. The webpages will follow a similar format that was adopted by the IRS to offer informal information regarding the TCJA’s transition tax.
- IRS: Restructuring the Advance Pricing and Mutual Agreement program (APMA) to consolidate resources and improve internal processes, including economists.
There is still significant uncertainty re: Sec. 965 repatriation tax, GILTI, FDII and BEAT provisions by taxpayers. It is hopeful that meaningful guidance will be issued shortly.
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.
The US Tax Act GILTI regulations are under review, and should be released before the end of Q3, that will require review and incorporation into the annual ETR. The regulations are expected to address a consolidated, vs. separate shareholder, approach for the calculation as well as some guidance re: US expense allocation. EY’s Global Tax Alert summarizes the status of this guidance.
Additionally, guidance was recently released on Sec. 162(m) compensation, also necessitating review for Q3 reporting.
The proposed regulations that were released for Sec. 965, deemed repatriation tax, are expected to be followed up by final regulations by June 2019. The third quarter 2018 marks the end of the SAB 118 period to finalize such amounts, notwithstanding additional guidance in the future. Note, these regulations should provide definitive guidance on some pending items (inclusion of PTI for a E&P deficit foreign corporation; calculation of Sec. 986 gain for Sec. 965b E&P) that may require amending 2017 corporate income tax returns.