Treasury and the IRS on June 14, 2019 released 318-page final regulations (the Final Regulations) and 74-page proposed regulations (the Proposed Regulations) under Section 951A as enacted by the 2017 tax reform legislation (the Act) and provisions related to implementing Section 951A. The Final Regulations and Proposed Regulations provide guidance relating to a US shareholder's pro rata share of its global intangible low-tax income (GILTI).
As discussed in a prior PwC Insight, Section 951A requires a US shareholder to include in income the GILTI of its CFCs. While the full amount of GILTI is includible in the US shareholder’s income, the net GILTI inclusion is reduced through a 50% deduction in tax years beginning after December 31, 2017, and before January 1, 2026 (and a 37.5% deduction in tax years beginning after December 31, 2025).
Subsequently, on September 13, 2018, Treasury and the IRS released the 2018 Proposed Regulations relating to Section 951A, which generally provided guidance relating to the mechanics of determining a US shareholder’s GILTI inclusion, including CFCs held through partnerships and determining a GILTI inclusion on a consolidated basis
Although the Final Regulations generally follow the structure and approach set forth in the 2018 Proposed Regulations, there are significant modifications that are likely to impact a taxpayer’s GILTI tax calculation. Taxpayers should also consider the modifications proposed in the Proposed Regulations as they could have a significant impact in the future.
Taxpayers should immediately review the Final Regulations and Proposed Regulations to determine whether their GILTI and Section 965 tax liability may be affected.
The above-mentioned highlights are not an exhaustive list of the provisions in the Final Regulations or Proposed Regulations.
Washington National Tax Services International Tax Leader, PwC US