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International R&E: Impact of Section 174 Capitalization Requirements on Multinational Taxpayers

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, May 2, 2023

Recorded event now available

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This webinar will discuss the impact of recent changes to the deductibility of research and experimental expenditures (R&E) on multinational taxpayers. Our panel of international tax advisers will clarify what costs constitute R&E expenses, explain how these costs should be treated, and provide examples of the impact of these changes on GILTI, FDII, foreign tax credits, and other foreign tax calculations.

Description

The requirement to capitalize rather than expense Section 174 purchases has created complications for domestic taxpayers but more significant concerns for international taxpayers. Before 2022, taxpayers could deduct R&E expenses as incurred. Now taxpayers making overseas R&E purchases must amortize these expenses over 15 years. With the one-half year first year convention, this equates to a deduction equal to one-thirtieth of the former expense deduction.

Tracking overseas R&E expenses is now a must. Although some businesses may have captured R&D expenses--those that qualified for the R&D credit--R&E expenses are a much broader category. Purchases of raw materials overseas likely remain 100 percent deductible, while payments for software development overseas may now have to be amortized over 15 years.

Further complications for international taxpayers include the impact of these purchases on GILTI, FDII, foreign tax credits, and BEAT calculations. Taxpayers previously qualifying for the GILTI high tax exception, for example, may not be eligible based on current foreign taxable income. Foreign tax practitioners need to take a fresh look at these tax calculations for taxpayers working multinationally.

Listen as our panel of international income tax experts explains the effect of the changes to R&E expenses on international taxpayers.

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Outline

  1. New R&E capitalization requirements
  2. Identifying Section 174 assets
  3. Amortization
  4. Impact on foreign tax calculations
    1. GILTI
    2. FDII
    3. Foreign tax credits
    4. BEAT
    5. Other foreign tax calculations
  5. Best practices

Benefits

The panel will review these and other critical issues:

  • Identifying R&E expenses subject to Section 174 capitalization requirements
  • Determining how amortization requirements affect GILTI calculations
  • Deciding tax strategies to mitigate the effects of changes to Section 174 acquisitions
  • Differences between R&E and R&D expenditures
  • Tracking R&E costs

Faculty

Peters, Julie
Julie Peters, CPA
Tax Senior Manager
Plante Moran

Ms. Peters specializes in tax credits and incentives, notably the R&D tax credit, with diverse industry experience...  |  Read More

Piwonski, Robert
Robert Piwonski, CPA
International Tax Senior Manager
Plante Moran

Mr. Piwonski is an experienced senior tax manager and has more than ten years of public accounting experience assisting...  |  Read More

Woods, Jay
Jay Woods, CPA
International Tax Manager
Plante Moran

Mr. Woods is a tax manager at Plante Moran focusing on international and corporate tax. He has experience assisting...  |  Read More

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