Taxation of Foreign Source Income Under New Tax Law

Expansion of Subpart F, §245A D.R.D., Sales of CFC Stock, Tweaks to Ownership Attribution Rules, Exceptions and Planning Techniques

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


Conducted on Tuesday, November 19, 2019

Recorded event now available

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Program Materials

This webinar will provide tax professionals guidance on new rules and final and proposed regulations governing the taxation of foreign source income. The panel will present an in-depth analysis of the expansion of Subpart F, global intangible low-taxed income (GILTI), the territorial dividends received deduction (DRD), and the Code §962 election. In addition, the panel will provide guidance on avoiding pitfalls in planning and compliance.

Description

The 2017 tax law places the taxation of foreign-source income at the forefront of developing tax planning strategies for U.S. individual and corporate shareholders. Notable changes to Subpart F, the addition of GILTI, FDII, and the territorial DRD, and these rules’ application to transfers of stock in foreign corporations, among other matters, require a careful analysis of the new rules affecting the structure of offshore activities and the U.S. reporting of foreign-source income.

Subpart F requires deeming certain income of a controlled foreign corporation (CFC) as distributed to the U.S. shareholders and subject to current taxation. The addition of GILTI, which is viewed as an expansion of U.S. tax jurisdiction beyond the boundaries of Subpart F, now increases the amount of CFC income currently taxable to U.S. shareholders in circumstances where deferral was allowed under prior law. Also, changes to the rules regarding US ownership counting towards CFC status results in the treatment of more foreign corporations as CFCs.

Income that is taxed under local law at a rate higher than 18.9% will be excluded from GILTI under newly proposed regulations. US corporate shareholders of CFCs are eligible to claim a deduction that reduces the effective tax on GILTI income to 10.5%. While individuals cannot claim the deduction, an election under Code §962 may reduce the current tax payment on profits retained offshore. Actual dividends in subsequent years are given special treatment under Code §959.

The DRD under Code §245A allows a domestic corporation to claim a 100% deduction for the foreign-source portion of dividends received from specified 10%-owned foreign corporations. This benefit does not extend to hybrid dividends.

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Outline

  1. Taxation of foreign source income: prior law vs. new tax law
  2. Code §245A and foreign-source dividends received deduction (excluding hybrid dividend transactions)
  3. Hybrid Transactions
  4. Sales and other transfers of stock in foreign corporations
  5. Code §1248 rules
  6. Expansion of Subpart F: new CFC ownership attribution rules
  7. Global intangible low-tax income (GILTI) & foreign-derived intangible income (FDII)
  8. Code §962 election and subsequent distributions

Benefits

The panel will review these and other relevant issues:

  • How the ownership rules of Subpart F have changed
  • The increase in the amount of CFC income taxable to U.S. shareholders
  • Understanding U.S. reporting requirements
  • Tax implications of sales or transfers of shares of CFCs by U.S. individual and corporate shareholders
  • Best practices and planning techniques for counsel and tax professionals regarding the taxation of foreign income

Faculty

Antebi, Galia
Galia Antebi

Member (Partner)
Ruchelman

Ms. Antebi focuses her practice on the international and domestic tax aspects of business structuring for worldwide...  |  Read More

Ruchelman, Stanley
Stanley C. Ruchelman

Chairman
Ruchelman

Mr. Ruchelman concentrates his practice in the area of tax planning for transactional business operations, with...  |  Read More

Apostolides, Andreas
Andreas A. Apostolides

Attorney
Ruchelman

Mr. Apostolides offers thoughtful and thorough advice to his clients and helps them find significant efficiencies in...  |  Read More

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