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 global intangible low-taxed income (GILTI) provision in the US Tax Cuts and Jobs Act (Tax Act) was legislated based on the principal of each relevant US, or relevant, shareholder. This contrasts with the US consolidated group approach for the Sec. 965 repatriation tax, thus will/should both be consistent?
Currently, a planning review of the US/relevant shareholders may be dictated based on the types of controlled foreign corporation (CFCs) in that particular shareholder chain. However, there has been acknowledgment of this mismatch for ownership tests, and a possibility that the GILTI provisions may also conform to a US consolidated group approach.
Pending further guidance, it may be prudent to calculate the GILTI effect on both approaches and take advantage of the 1-year SEC measurement period for public companies for more definitive rules. However, US public MNE’s should review the potential guidance to be issued for Q1, with clarity as to whether a reasonable amount will be calculated as part of the Annual ETR process, or omitted therefrom.
Based on the complexity of this provision, additional challenges are present if the current shareholder chain approach is not changed. Notwithstanding this aspect, there are many complexities involved with this calculation to derive a reasonable amount or a number which is ultimately final and certain.
McDermott Will & Emery highlights the state tax effects of the deemed repatriation and GILTI tax; some of which may not may be intuitive. The deemed repatriation income is included under Sec. 951(a), whereas the GILTI inclusion is includable under new Sec. 951A.
The concept of special deductions also is highlighted for further analysis.
Note, as different technical details of this bill are further reviewed, the SIT aspect becomes even more complex with timing issues by states not uniform from the federal changes.
The deemed repatriation inclusion will be includable in 2017 US federal income tax returns for calendar-year taxpayers, whereas most provisions will take effect in 2018 or later.