HIDE

Other Publications

Insights

Publications

Is the 100% Dividend Received Deduction Under Code §245A About as Useful as a Chocolate Teapot?

Is the 100% Dividend Received Deduction Under Code §245A About as Useful as a Chocolate Teapot?

Remember when Code §1248 was intended to right an economic wrong by converting low-taxed capital gain to highly-taxed dividend income? (If you do, you probably remember the maximum tax on earned income (50% rather than 70%) and income averaging over three years designed to eliminate the effect of spiked income in a particular year.) Tax law has changed, and dividend income no longer is taxed at high rates. Indeed, for C-corporations receiving foreign-source dividends from certain 10%-owned corporations, there is no tax whatsoever. This is a much better tax result than that extended to capital gains, which are taxed at 21% for corporations. Neha Rastogi and Stanley C. Ruchelman evaluate whether the conversion of capital gains into dividend income produces a meaningful benefit in many instances, given the likelihood of prior taxation under Subpart F or G.I.L.T.I. rules for the U.S. parent of a multinational group. Hence the question, is the conversion of taxable capital gains into dividend income under Code §1248 a real benefit, or is it simply a glistening

Read More

New Jersey Provides G.I.L.T.I Guidance

New Jersey Provides G.I.L.T.I Guidance

Federal tax law has introduced a new type of gross income: Global Intangible Low Tax Income (“G.I.L.T.I.”).  The provisions are designed to stop U.S. companies from shifting their profits to offshore jurisdictions, and states are given a choice to incorporate parts of Federal law in one of three ways.  New Jersey has chosen “selective conformity.”  Nina Krauthamer and Rusudan Shervashidze explain what this means for the state and for taxpayers.

Read More

Code §962 Election: One or Two Levels of Taxation?

Code §962 Election: One or Two Levels of Taxation?

Code §962 allows an Individual U.S. Shareholder to apply corporate tax rates and offers relief from double taxation in certain situations, but where new provisions of the Tax Cuts & Jobs Act (“T.C.J.A.”) are involved, the application is murky. The T.C.J.A. introduced two provisions designed to limit the scope of deferral for the earnings of foreign subsidiaries operating abroad. One provision is the one-time deemed repatriation tax regime of Code §965, which looks backward to tax what had been permanently deferred earnings. The other provision is the global intangible low taxed income (“G.I.L.T.I.”) regime, which eliminates most deferral on a go-forward basis. Each provision limits deferral but, at the same time, imposes relatively benign tax on U.S.-based multinationals. Interestingly, it seems that it was only in the last days of the legislative process that Congress became aware that owner-managed businesses also operate abroad. While the provisions clearly apply to corporations, Congress may or may not have provided a benefit for the U.S. individuals who own of these companies. Sound cryptic? Fanny Karaman and Nina Krauthamer explain all.

Read More

A Deep Dive into G.I.L.T.I. Guidance

A Deep Dive into G.I.L.T.I. Guidance

The I.R.S. has published proposed regulations on the global intangible low-taxed income ("G.I.L.T.I.") regime, which is applicable to those controlled foreign corporations that manage to operate globally without generating effectively connected income taxable to the foreign corporation or Subpart F Income taxable to its U.S. Shareholders. In a detailed article, Rusudan Shervashidze, Elizabeth V. Zanet, and Stanley C. Ruchelman examine the proposed regulations and all their complexity.

Read More

Tax Considerations of I.P. When Expanding a Business Offshore

Tax Considerations of I.P. When Expanding a Business Offshore

If a client asks a U.S. tax adviser about the U.S. tax cost of contributing intangible property (“I.P.”) to a foreign corporation for use in an active business, the response can be a dizzying array of bad tax consequences beginning with a deemed sale in a transaction that results in an ongoing income stream. While that is a correct answer, it need not be the only answer. Elizabeth V. Zanet and Stanley C. Ruchelman explore alternatives to a capital contribution of I.P. to a foreign corporation, including (i) the use of a foreign hybrid entity and (ii) licensing the I.P. to a foreign entity in order to benefit from the F.D.I.I. tax deduction. Each alternative may provide interesting tax results, but attention to detail will be required.

Read More

A New Tax Regime for CFCs: Who Is GILTI?

Published by the Civil Research Institute in the Journal of Taxation and Regulation of Financial Institutions, vol. 31, no. 03 (Spring 2018): pp. 17-28.

Read More

Coming to the U.S. After Tax Reform

Coming to the U.S. After Tax Reform

Now, more than six months after enactment of the Tax Cuts & Jobs Act, many tax advisers have achieved a level of comfort with the brave new world of Transition Tax, F.D.I.I., G.I.L.T.I., B.E.A.T., and incredibly low corporate tax rates. However, sleeper provisions in the new law can have drastic adverse tax consequences in the realm of cross-border transactions and investments: (i) the threshold for becoming a C.F.C. has been reduced significantly by several changes in U.S. tax law and (ii) the 10.5% tax rate for G.I.L.T.I. is limited to corporations so that individuals face ordinary income treatment for G.I.L.T.I. inclusions from foreign corporations that were not C.F.C’s. prior to the new law. Jeanne Goulet of Byrum River Consulting L.L.C., New York, addresses these problems and suggests several planning opportunities.

Read More

Code §962 Election Offers Benefits Under U.S. Tax Reform

Code §962 Election Offers Benefits Under U.S. Tax Reform

Two provisions in the recent tax reform legislation – Code §§965 (transition tax) and 250 (50% deduction for G.I.L.T.I.) – focus on C.F.C.’s and their U.S. Shareholders.  In each case, corporate U.S. Shareholders are entitled to a deduction that is not granted to an individual with regard to income that is taxed under Subpart F.  However, Code §962 may allow an individual who is a U.S. Shareholder of a C.F.C. to elect to be taxed on the Subpart F Income as if a corporation.  This allows for tax at a lower rate and a foreign tax credit for corporate income taxes paid by the C.F.C.  Elizabeth V. Zanet and Galia Antebi explain the workings of Code §962 and focus on the position of naysayers who caution that it may not provide the relief it appears to provide.

Read More

New U.S. Tax Law Adopts Provisions to Prevent Base Erosion

New U.S. Tax Law Adopts Provisions to Prevent Base Erosion

Following the lead of the O.E.C.D. and the European Commission (“E.C.”), the T.C.J.A. adopts several provisions designed to end tax planning opportunities.  In some instances, the new provisions closely follow their foreign counterparts.  In others, the provisions that are specific to U.S. tax law.  Among these changes are (i) the introduction of the G.I.L.T.I. minimum tax on the use of foreign intangible property by C.F.C.’s, (ii) the total revamp of Code §163(j) so that it reflects an interest ceiling rather than an earnings stripping provision, (iii) the restriction of tax benefits derived from the use of hybrid entities and transactions, (iv) the broadened scope of Subpart F through definitional changes, (v) legislative reversals of judicial decisions in which I.R.S. positions in transfer pricing matters were successfully challenged, and (vi) legislative reversals of a judicial decision invalidating Rev. Rul. 91-32 regarding the sale of partnership interests by foreign partner.  Sheryl Shah and Stanley C. Ruchelman discuss these provisions and place them in context. 

Read More

A New Tax Regime for C.F.C.’s: Who Is G.I.L.T.I.?

A New Tax Regime for C.F.C.’s: Who Is G.I.L.T.I.?

The T.C.J.A. introduces a new minimum tax regime applicable to controlled foreign corporations (“C.F.C.’s”).  It also provides tax benefits for incomefrom “intangibles” used to exploit foreign markets.  The former is known as G.I.L.T.I. and the latter is known as F.D.I.I.  Together, G.I.L.T.I. and F.D.I.I. change the dynamics of cross-border taxation and can be seen as an incentive to supply foreign markets with goods and services produced in the U.S.  Both provisions reflect a view that only two value drivers exist in business: (i) hard assets (such as property, plant, and equipment) and (ii) intangible property.  In a detailed set of Q&A’s, Elizabeth V. Zanet and Stanley C. Ruchelman look at the ins and outs of the new provisions.

Read More