Preliminary highlights from final and proposed high-tax exception regulations

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July 2020

Overview

Treasury and the IRS on July 20 released 112 pages of final regulations (the Final Regulations) and 97 pages of proposed regulations (the Proposed Regulations) under Sections 954 and 951A, relating to the treatment of income that is subject to a high rate tax under the global intangible low-taxed income (GILTI) and subpart F tax regimes.

Notably, the Final Regulations largely adopt the approach taken in the 2019 Proposed Regulations with some modifications to the methodology used to determine income and taxes attributable to a qualified business unit (QBU) (now referred to as a ‘tested unit’) and determining the controlled foreign corporation (CFC) group.

Additionally, the Proposed Regulations bring the high-tax exception for subpart F income purposes in conformity with the GILTI high-tax exception so that a unified election applies. The Proposed Regulations generally apply to tax years of CFCs beginning after the date the regulations are finalized, and to tax years of US shareholders in which or with which such tax years of foreign corporations end (with exceptions to certain provisions).

PwC is in the process of reviewing the Final Regulations in detail; some of the key highlights we have identified thus far are set forth below. An in-depth Insight on the Final Regulations and the Proposed Regulations will be published in the coming days. In addition, we will discuss the GILTI guidance on a PwC webcast: Tax Readiness: The High Tax Exception - GILTI and subpart F, scheduled for July 30 at 2:00 pm ET.

The takeaway

The Final Regulations largely adopt the 2019 Proposed Regulations with certain modifications intended to clarify how to identify tested units of CFCs and attribute income to such CFCs. However, most taxpayer comments related to the 2019 Proposed Regulations were noted but not accepted.

The above-mentioned highlights are not an exhaustive list of the provisions in the Final and Proposed Regulations. We expect to publish an in-depth Insight in the coming days.

Contact us

Doug McHoney

International Tax Services Leader, PwC US

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