International Tax Reform News Out of D.C.

Last December 2017, as we were all preparing to break for the holidays, our President and Congress gifted us with the monumental Tax Cuts and Jobs Act of 2017 (TCJA). Not to be outdone as we approach the holiday season this year, the IRS and Treasury have been doling out several gifts to the International Tax community.

On December 13, 2018, the IRS issued the Proposed Regulations on Section 59A Tax on Base Erosion Payments also known as BEAT. These regulations were preceded by the recent issuance of the proposed regulations for the new Section 163(j) Limitation on Deductibility of Interest Expense and proposed regulations on the application of the Foreign Tax Credit related to the changes made by TCJA. Each of these proposed regulations packages consists of several hundred pages of technical guidance perfect reading for all the free time during the holiday season.

Other smaller gifts have been doled out as well and more are still expected before the end of the year.

  • IRS issued additional FAQs related to the Section 965 Transition tax and reporting issues for 2018;
  • IRS promised guidance on the big question for individuals contemplating the Section 962 election “will the individuals be allowed the benefit of the Section 250 the 50% dividend received deduction on GILTI?”. This guidance is expected to be part of the proposed regulations for Section 250 which will address this and other Foreign Derived Intangible Income (FDII) guidance;
  • IRS also promised to give guidance on how to treat the Section 965 Previously Taxed Income (PTI) in the soon to come proposed PTI regulations;

The IRS and Treasury are still considering what authority they have to limit the impact of the what is perhaps the most vexing provision in the TCJA, the repeal of Section 958(b)(4). The repeal of this provision allowed for so-called downward attribution of ownership of foreign corporations creating unexpected CFCs with extra reporting, inclusions and other unanticipated challenges for taxpayers.

2018 was definitely a busy year for international tax reform, and it appears 2019 will be equally if not more busy!

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