The IRS released proposed rules that expand a high-tax exclusion for multinationals that have been unintentionally hit by an international provision meant to ensure companies pay a minimum tax on offshore profits in low-tax countries.
The proposed regulations (REG-101828-19) issued June 14 include guidance under tax code Section 958 for determining stock ownership and Section 951 on a new category of foreign income—global intangible low-taxed income.
A tax on GILTI ensures that companies pay 10.5% on offshore profits that aren’t already taxed at a rate of at least 13.125%. The levy applies to income that U.S. shareholders earn from controlled foreign corporations—those that are more than 50% owned by U.S. shareholders who own 10% or more of the total stock in the CFC. But companies with CFCs that were paying more than 13.125% overseas were still getting caught by GILTI.
The Internal Revenue Service said it determined that the high-tax exclusion under GILTI should be expanded on an elective basis “to include certain high-taxed income even if that income would not otherwise” be considered foreign base company income under Section 954 or insurance income under Section 953.
That expanded exclusion wouldn’t apply to 2018 tax returns that calendar year CFCs and calendar year U.S. shareholders are preparing.
“The Treasury Department and the IRS have determined that taxpayers should be permitted to elect to apply the exception under section 954(b)(4) with respect to certain classes of income that are subject to high foreign taxes within the meaning of that provision,” the proposed rules said.