Tax reform readiness: Foreign-derived intangible income

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March 2018

Overview

The 2017 tax reform reconciliation act (the Act) — the largest overhaul of the US tax code in 31 years — already is having a substantial impact on US taxpayers. The Act introduces several important new concepts to the Internal Revenue Code, including ‘foreign-derived intangible income,’ or FDII.

This Insight reviews the basics of, and key issues regarding, FDII.  PwC on March 14 hosted a webcast featuring PwC specialists who discussed these important issues. Watch the webcast replay and register for future webcasts in PwC’s Tax Reform Readiness series, which addresses other areas affected by tax reform.

The next webcast — Tax reform readiness: Global reaction to US reform — will take place March 21, from 2:00 PM - 3:00 PM (EST).

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The takeaway

New Section 250(a) provides a new deduction for US-based multinationals that helps offset the inclusion of a new category of income (GILTI) in their taxable income. Taxpayers with FDII and GILTI need to master the calculations and rules relating to these new concepts, and to identify which issues are not yet resolved but could be addressed in forthcoming guidance. However, because much of this guidance could take the form of regulations, there could be considerable delay before final rules are issued. Taxpayers therefore should analyze which existing guidance appears analogous and may allow them to develop reasonable positions while they await new guidance on FDII and GILTI.

In the meantime, responses to a polling question during the March 14 webcast indicate that different companies expect to obtain FDII benefits from at least four different types of transactions: direct sales to foreign customers (19.8% of respondents); provision of services to property or persons located abroad (15.3%); sales to related foreign parties followed by ultimate sales to foreign customers (17.7%); and royalties from licensed properties (15.1%).

Contact us

Michael DiFronzo

Partner, Washington National Tax Services ITS Leader, PwC US

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