The American Institute of CPAs (AICPA) submitted recommendations to the U.S. Department of the Treasury and the Internal Revenue Service (IRS) on January 10 regarding proposed regulations to implement Internal Revenue Code section 951A, commonly referred to as Global Intangible Low Tax Income (GILTI), as enacted by the Tax Cuts and Jobs Act. The proposed regulations (REG-104390-18) would affect U.S. shareholders of controlled foreign corporations (CFCs).
The recommendations focused on carryforward of net tested losses, several proposed anti-abuse provisions and the interaction with the section 245A dividends received deduction.
Specifically, the AICPA recommended that the Treasury Department and the IRS:
- Draft regulations allowing a U.S. shareholder of CFCs with a “net tested loss” in any tax year the ability to carryforward the amount of the net tested loss to offset net CFC income of that U.S. shareholder in future tax years. A “net tested loss” is when the total tested losses exceeds total tested income.
- Modify the pro-rata share anti-abuse rule in Prop. Reg. § 1.951-1(e)(6) as follows:
- Provide for a specific and narrow application of the rule that will apply only in cases where abuse is clearly intended, such as non-economic transactions designed to minimize the tax under this provision.
- Provide an explicit exclusion for transactions conducted with unrelated parties within the meaning of sections 267(b) and 707(b).
- Provide an explicit exclusion for transactions conducted with related parties located in the same country of tax residence as the relevant CFC.
- Provide a small business exception to the provision for U.S. shareholders with worldwide gross receipts under $25 million as determined under section 448(e).
- Modify the proposed anti-abuse rule for temporarily held property to exclude assets acquired or disposed to/from unrelated parties (within the meaning of sections 267(b) and 707(b)) provided that the taxpayer can reasonably establish that the transaction occurred in the ordinary course of a trade or business.
- Allow a CFC the section 245A dividends received deduction in calculating its subpart F income in the final regulations.