On June 14th, 2019, the Treasury and IRS issued much-anticipated final and proposed regulations to further clarify the complex global intangible low-tax income (GILTI) regime that was initially introduced as part of the 2017 Tax Cuts and Jobs Act (the Tax Act). The original proposed GILTI regulations were issued on September 13, 2018 and had a finalization deadline of June 22, 2019 in order to be retroactively effective as of the original passage of the Tax Act. These final regulations could have a significant impact for U.S. taxpayers with international investments and operations.
Final GILTI Regulations
The final GILTI regulations clarify, and in some instances significantly modify, the September 13, 2018 proposed regulations. Most notably, the final regulations provide more detail regarding the calculation of GILTI qualified business asset investment, clarify when amounts exempt from Subpart F are also exempt from GILTI, limit the application of GILTI for partners in domestic partnerships, modify interest income rules for GILTI calculations, and refine certain anti-abuse rules. The final regulations are effective retroactively to tax years of foreign corporations beginning after December 31, 2017 and to taxable years of U.S. shareholders in which or with which such taxable years of the foreign corporation end.
Proposed GILTI Regulations
The proposed GILTI regulations further address the treatment of partnerships noted in the final GILTI regulations and provide clarity regarding when and how a taxpayer can qualify for the high-tax exemption to GILTI. The proposed regulations will be effective on or after the date of publication of the final regulations in the Federal Register. However, taxpayers may apply the proposed rules to taxable years of a foreign corporation beginning after December 31, 2017 and to taxable years of U.S. shareholders in which or with which such taxable years of the foreign corporation end, as long as they are applied consistently.
Temporary Participation Exemption Regulations
In addition, temporary regulations have been issued with respect to the 100% participation exemption introduced as part of the Tax Act. The temporary regulations introduce anti-abuse rules that limit the applicability of the participation exemption to transactions that facilitate the avoidance of Subpart F or GILTI inclusions. These temporary regulations are effective as of June 18, 2019 (i.e., the date of publication in the Federal Register).
How Can Venable Help?
The international tax rules introduced in the 2017 Tax Act are complex and evolving rapidly. U.S. taxpayers with foreign investments and operations should proactively consider how this new regime can impact the tax efficiency and compliance of their international businesses. Venable's international tax team can help clients understand the implications of these new regulations and how best to structure their operations accordingly.