International Year-End Planning Considerations for Taxpayers

Have you reviewed and updated your international operational, financial and tax strategies for 2020? With all of the changing regulations and laws surrounding international reporting and compliance, here are a few of items to be aware of as you prepare for your 2020 year-end.

Foreign Tax Credit Considerations

• Did you have a Deemed Repatriation as of December 31, 2017? The IRS has announced a campaign to review Taxpayers’ Section 965 (Transition Tax/Deemed Repatration) reporting in prior years.
• Are your Foreign Activities subject to the Global Intangible Low-Taxed Income (“GILTI”) Regime?
  • Election to exclude “High Taxed Income” from GILTI
  • Section 962 election for individual U.S. shareholders of CFCs
• Do you sell goods or provide services outside of the U.S.?
  • The Foreign Derived Intangible Income (“FDII”) rules subject FDII eligible income to an effective tax rate of 13.125%.
• Transfer Pricing
  • Have Tariffs impacted you?
  • Do you have the required transfer pricing policies and documentation for related-party transactions?
• Do you pay income taxes on income earned in a foreign jurisdiction?
• Are you contemplating repatriating cash to the U.S. from a CFC?
• Considerations for Individuals
  • Have you relocated or been affected by a travel restriction due to measures implemented in response to COVID-19?
  • Are you eligible for the foreign-earned income exclusion to exclude certain income from taxation?
  • Are you a beneficiary of a non-U.S. Trust?

Global Impact From TCJA Regulations

The 2017 TCJA vastly changed International planning for U.S. taxpayers. The biggest change was moving to a “territorial” taxation system for corporations that allows for a “participation exemption” and removes foreign related-party dividends from taxable income.

Two of the major international changes of the TCJA of 2017 are:

The Global Intangible Low Taxed Income (GILTI) Provision

The Foreign Derived Intangible Income (FDII) Provision

Both were effective with tax returns beginning after December 31, 2017. During 2019 and 2020, the IRS issued both final and proposed regulations and several notices regarding these provisions.

The Digital Economy

The whole world is changing! The Digital Economy is outpacing tax reforms and will continue to do so. We expect the IRS will provide more guidance and clarifications in the coming year.

The World Trade Organization and the Organization for Economic Cooperation and Development are working on a proposed worldwide tax regime to address the impact of digitalization on nexus, profit allocation, and base erosion and profit shifting by multinational entities. Learn more in our recent article, Taxation of a Digital Economy.

At Withum, we will continue to provide proactive, accurate and efficient international tax solutions in this ever-evolving and ever-changing global environment.