Just after 4 p.m. on Thursday, September 13, 2018, the IRS released its second set of proposed international regulations under the Tax Cuts and Jobs Act of 2017 (TCJA).

 

These proposed regulations provide the first piece of Treasury guidance under Code Section 951A (Global Intangible Low Taxed Income), which brings into effect the so-called “GILTI” regime. To put it simply, GILTI is a mechanism to tax U.S. shareholders of controlled foreign corporations (CFCs), on their share of CFC income over and above a 10 percent return on the tax basis of tangible depreciable assets (subject to certain exceptions).

 

Some key areas where guidance is provided in the proposed regulations

include:

The calculation of tested income and tested loss of a CFC:

 

  • The tested income and tested loss of a CFC are generally calculated by treating the CFC as a U.S. corporation
  • In determining the tested income of a CFC, no deductions are allowed for net operating loss carryovers and capital loss carryovers
  • The exception from tested income for “high-taxed income” only applies to gross income that would otherwise have been Subpart F income if the U.S. shareholder had not elected to exclude it under the high-tax exception
  • Quarterly averaging rules for determining the tax basis in tangible assets
  • The calculation of items necessary to determine the amount of interest expense that reduces net deemed tangible income return (based on QBAI)

Discover more: IRS Releases First Round of Proposed GILTI Regulations

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