Structuring Private Equity for GILTI and Subpart F: Minimizing Tax for CFCs Under Section 951A, New Regulations

Description

One of the most far-reaching changes to the taxation of non-U.S. companies under tax reform was the expansion of the CFC regime. Before tax reform, U.S. owners of CFCs could generally defer paying U.S. tax on offshore earnings until repatriation, except for Subpart F (passive) income. Section 951A introduced a new category of income (GILTI) that is taxed in the U.S. whether or not repatriated.

A U.S. person who is at least a 10% shareholder of a CFC is subject to federal income tax on the CFC's GILTI, defined as net offshore income (excluding Subpart F income) that exceeds a deemed 10% return on the basis in certain tangible assets. Taken together, GILTI and Subpart F require close to full inclusion of offshore earnings in U.S. taxable income on a current basis, rather than the limited inclusion required under prior law.

On June 14, 2019, the IRS published proposed regulations providing that partners in a U.S. partnership will not have any income inclusions under the Subpart F income and/or GILTI rules in respect of stock of a CFC owned by such U.S. partnership if those partners are not themselves 10% U.S. shareholders. The new regs provide welcome tax relief to 10% shareholders that are not corporations and give fund counsel a tax planning opportunity.

Listen as our authoritative panel analyzes GILTI, Subpart F, and the recent regs and how they affect the incentives driving portfolio company investment.