| Global intangible low-taxed income (GILTI) |
Domestic corporations are allowed a 50% deduction of their GILTI. For tax years beginning after December 31, 2025, the deduction for GILTI is reduced to 37.5 %.
The calculation of GILTI and the associated foreign tax credit (FTC) are made on an aggregate basis. The GILTI taxes available for FTC are subject to a 20% reduction.
Taxpayers receive a reduction for GILTI inclusions equal to 10% of the qualified business asset investment (QBAI) of their controlled foreign corporations (CFCs). |
The proposal would reduce the GILTI deduction to 25%.
GILTI and the associated FTC would be calculated on a country-by-country basis.
The GILTI and Subpart F high-tax exclusion election would be repealed.
The reduction of GILTI for QBAI would be repealed.
The proposal would be effective for taxable years beginning after December 31, 2021.
Read more |
The proposal would reduce the GILTI deduction to 37.5%.
GILTI and the associated FTC would be calculated on a country-by-country basis.
A country with an aggregate tested loss would be permitted to carry that loss forward to the succeeding taxable year.
The reduction of GILTI for QBAI would be reduced from 10% to 5%.
The proposal would be effective for taxable years beginning after December 31, 2021, with a transition rule for fiscal-year taxpayers.
Sec. 138126 of H.R. 5376; IRC Sec. 951A and IRC Sec. 250. |
The discussion draft would change the GILTI deduction to a yet-to-be-determined percentage.
GILTI and the associated FTC would be calculated on a country-by-country basis, with an automatic high-tax exclusion for countries with a tax rate equal to the GILTI rate.
The reduction of GILTI for QBAI would be repealed.
The proposal would be effective for tax years beginning after December 31, 2021. |
| Foreign tax credit categories and carryover rules |
Taxpayers determine their FTC limitation separately for each category of income included in IRC Sec. 904(d), including passive, general, foreign branch, GILTI and treaty-based.
Other than the GILTI category, which has no carryback or carryover for FTCs, all other categories are entitled to a one-year carryback and 10-year carryforward of excess FTCs.
Current law provides a complex set of expense allocation and apportionment rules for expenses contained in the IRC Sec. 861 regulations for purposes of determining the FTC limitation. IRC Sec. 904(b)(4) provides that expenses allocated and apportioned against IRC Sec. 245A income increase the denominator of the FTC limitation fraction for each category of income. |
In addition to the changes to the GILTI FTCs being calculated on a country-by-country basis, the proposal would also extend the country-by-country FTC limitation to the branch category.
The proposal contains no changes to the FTC carryover provisions.
The proposal also would repeal IRC Sec. 904(b)(4) and, instead, modify IRC Sec. 265 to provide that any expenses allocated and apportioned to IRC Sec. 245A income or to income for which an IRC Sec. 250 deduction is claimed against GILTI are treated as if they generated tax-exempt income and would not be deductible.
The proposal would be effective for taxable years beginning after December 31, 2021. |
The proposal would amend IRC Sec. 904(d) so that the FTC would be calculated on a country-by-country basis for all categories of income.
The FTC carryover provisions would be amended to provide that, for all categories of income (including GILTI) there would be no FTC carryback and the FTC carryforward period would be reduced from 10 years to five years.
The proposals would modify the expense allocation and apportionment rules for purposes of determining the FTC to indicate that the only expense allocable to GILTI income is the IRC Sec. 250 deduction.
The proposal also would repeal IRC Sec. 904(b)(4).
The proposal would generally be effective for taxable years beginning after December 31, 2021. The modifications to the carryback and carryforward provisions would apply to taxes paid or accrued in taxable years beginning after December 31, 2021. The modification relating to the redetermination of foreign taxes would be effective 60 days after the date of enactment.
Sec. 138124 of H.R. 5376; IRC Sec. 904 |
The discussion draft provides that the branch category would be changed to be computed on a country-by-country basis, with an automatic high-tax exclusion provision similar to the GILTI high-tax exclusion provisions.
The discussion draft does not include any proposed modifications to the FTC carryover rules.
The discussion draft would modify the expense allocation and apportionment rules for purposes of determining the FTC limitation under IRC Sec. 904 by providing that stewardship and research and development expenses would be treated as US-source if the activities are conducted in the U.S. Expenses for activities conducted outside the U.S. would be sourced under the existing rules.
The proposal would be effective for taxable years beginning after December 31, 2021. |
| Foreign-derived intangible income (FDII) deduction |
Domestic corporations are allowed a 37.5% deduction for FDII for any taxable year beginning after December 31, 2017, and 21.875% for any taxable year beginning after December 31, 2025. |
The FDII deduction would be repealed.
The proposal would be effective for taxable years beginning after December 31, 2021. |
The FDII percentage change to the 21.875% would be accelerated to be effective generally for any taxable year beginning after December 31, 2021.
The proposal generally would be effective for taxable years beginning after December 31, 2021, with a transitional rule for fiscal-year taxpayers.
Sec. 138121 of H.R. 5376; IRC Sec. 250. |
The discussion draft provides that the FDII rules would become the foreign-derived innovation income rules.
The IRC Sec. 250 deduction for FDII would be harmonized with the GILTI IRC Sec. 250 deduction rate.
Changes to the calculation would include limitations based on qualifying wages and various modifications to the existing method of calculation.
The proposal would be effective for taxable years beginning after December 31, 2021. |
| Base erosion and anti-abuse tax (BEAT) |
An additional tax is imposed on certain multinational corporations with respect to payments made to foreign affiliates; it applies to corporations with average gross receipts over $500 million.
The BEAT rate is generally 10% for taxable years beginning in 2021 through 2025 and 12.5% for taxable years beginning after 2025.
|
The proposal would replace BEAT with the Stopping Harmful Inversions and Ending Low-Tax Developments (SHELD) provisions.
SHIELD would deny deductions to corporations or branches by reference to gross payments made to “low-taxed members,” which would be any financial reporting group member whose income is subject to an effective rate below a designated minimum rate.
The proposal would be effective for taxable years beginning after December 31, 2022. |
The proposal modifies the applicable percentage.
For taxable years beginning after December 31, 2021, and ending before January 1, 2024, the BEAT rate would be 10%. For taxable years beginning after December 31, 2023, and ending before January 1, 2026, the BEAT rate would be 12.5%. For taxable years beginning after December 31, 2025, the BEAT rate would be 15%.
Sec. 138131 of H.R. 5376; IRC Sec. 59A. |
The discussion draft would modify the BEAT rules to include a second, higher rate of tax when determining the base erosion tax liability. (This second, higher rate is still under consideration.) The higher rate would apply to “base erosion income,” which is the amount of income added to taxable income to determine modified taxable income (MTI).
IRC Sec. 38 domestic business credits are provided full value under BEAT by providing that not all IRC Sec. 38 general business credits reduce regular tax liability for purposes of determining the base erosion minimum tax amount.
The proposal would be effective for base erosion payments paid or accrued for tax years beginning after the date of enactment. |
| IRC Sec. 245A deduction for eligible foreign-source dividends |
A 100% deduction is provided for qualifying foreign-source dividends received from 10% or more owned foreign corporations held by a U.S. corporation that meets various ownership and holding period requirements. |
No proposal. |
The proposal would change the requirements to be eligible for an IRC Sec. 245A deduction from qualifying foreign-source dividends received from 10% or more owned foreign corporations to qualifying foreign-source dividends received from CFCs, limiting the availability of the IRC Sec. 245A deduction and eliminating the deduction for those foreign corporations that are so-called “10-50 companies.”
The proposal would be effective for distributions made after the date of enactment.
Sec. 138128 of H.R. 5376; IRC Sec. 245A and new Sec. 951B.
|
No proposal. |
| Downward attribution provisions for CFC status and various other provisions |
IRC Sec. 958(b)(4) had provided that, when determining whether a foreign corporation was a CFC, ownership by a foreign corporation of another foreign corporation could not be attributed under IRC Sec. 318 to a U.S. corporation (the so-called downward attribution rule).
IRC Sec. 958(b)(4) was repealed as part of the Tax Cuts and Jobs Act. The repeal of the rule caused complexity for various individual shareholders, private equity funds and foreign-parented groups in the determination of CFC status for certain foreign subsidiaries and the implications of such determination.
|
No proposal. |
The proposal would reinstate IRC Sec. 958(b)(4), thereby providing that, for purposes of IRC Sec. 318(a)(3), when determining attribution of ownership to a U.S. person, such ownership will not be attributed if the stock of the foreign corporation is not owned by a U.S. person.
The proposal would establish new IRC Sec. 951B, which would apply IRC Secs. 951A and 965 to foreign-controlled U.S. shareholders of a foreign CFC. The provisions would essentially create a new status of foreign corporation for which U.S. owners would have inclusions for GILTI and IRC Sec. 965 purposes as if IRC Sec. 958(b)(4) were still repealed.
The effective dates of these provisions would be retroactive and would apply to the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent taxable year of such foreign corporation and taxable years of U.S. persons in which or with which such taxable years of foreign corporations end.
Sec. 138128 of H.R. 5376; IRC Sec. 958 and new Sec. 951B. |
No proposal. |