ACA update on Transition Tax and GILTI advocacy

March 4, 2019

The US Treasury Department GILTI latest announcement on tax regulations (issued March 4th) gives some relief to individual taxpayers, including Americans abroad, heretofore slammed by the GILTI provisions enacted as part of TCJA in December 2017.
Taking notice of the strong arguments made in 34 sets of comments submitted in response to the proposed regulations, the Treasury Department has modified the regulations.  
The interesting spin to ACA members, according to Peter Palsen, advisor to ACA, is the interaction with RBT.  “Many owners of foreign companies were considering moving the foreign companies under U.S. holding companies so they could be sure to access the 50% deduction.  However, now the 50% deduction is available without actually moving the foreign shares into a U.S. company.  Why is this relevant to RBT?  Because dividends from a U.S. company are U.S. source income – and thus conceptually ineligible for RBT exemption. Therefore, for years prior to RBT, if the 50% deduction was not extended to Section 962 elections, individuals would have felt pressure to put foreign companies in U.S. companies – but that would be a problem when RBT is enacted.  Now thanks to this development, the pressure is reduced.”  
“Unfortunately, this does not relieve anyone of reporting requirements, which for most ACA members is the bigger deal.  In fact, they will need to continue to track the historic earnings of their foreign corporations,” said Charles Bruce ACA Legal Counsel.
“Nonetheless, this is a significant ‘win’, ” according to Peter Palsen. “For individuals with businesses that are paying at least modest amounts of foreign taxes (and otherwise are not subject to ‘normal’ Subpart F rules), the use of a Section 962 election will allow the individuals to go back to the old days of only paying tax on income in foreign companies when it is distributed.  Many of the software providers accommodate the Section 962 election, which makes life a tiny bit simpler.”