The US IRS today issued its first set of proposed regulations on the global intangible low-taxed income (GILTI) provisions added in the 2017 Tax Cuts and Jobs Act (TCJA).
The proposed regulations, issued under section 951A, guide US shareholders in determining the amount of GILTI to include in gross income. The new regs do not address the contentious issue of the foreign tax credit computational rules relating to GILTI, which, the IRS said, will be covered in separate regs in the future.
“These proposed regulations will implement key provisions of the Tax Cuts and Jobs Act and mark an important step towards modernizing the US tax system as we shift from a worldwide system toward a territorial system,” said Secretary Steven T. Mnuchin, announcing the new rules.
“We are providing clarity to taxpayers and closing loopholes that previously allowed for inappropriate international tax planning and shifting profits overseas,” Mnuchin said.
The Service said that proposed regs incorporate the TCJA’s new definition of a US shareholder of a foreign corporation and provide other guidance necessary for a US shareholder to coordinate subpart F and GILTI. The future foreign tax credit regs will likely provide rules for assigning the section 78 gross-up attributable to foreign taxes deemed paid under section 960(d) to the separate category described in section 904(d)(1)(A), the IRS said.
Under the TCJA’s new section 951A, a US shareholder of a controlled foreign corporation must currently include in income the intangible income earned by the CFC regardless of whether any amount is distributed to the shareholder. To maintain the US’s competitive position, this income is taxed at a lower tax rate and is further reduced by foreign tax credits.
Treasury and IRS are requesting public comments on the proposed regulations.
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