The long awaited final regulations on the high taxed exception from the GILTI inclusion will be discussed with practical examples. The foreign derived intangible income (FDII) final regulations will be discussed as well, with emphasis on the new taxpayer friendly “substantiation rules.” The FDII and GILTI provisions are often characterized as the carrot and stick provisions of the Tax Cuts and Jobs Act 2017. In principle, but not always in practice, FDII provides for an effective Federal tax rate of 13.125 percent for qualified net income from certain export transactions (so called foreign derived intangible income) while GILTI provides inclusions of “tested income” of controlled foreign corporations with a “minimum tax rate” of 10.5 percent at the U.S. corporate shareholder level. The FDII benefit (deduction) is only available to domestic C corporations. Incorporation of export activities combined with an IC DISC can result in an effective Federal rate below 13.125 percent. The “minimum tax rate” under GILTI is applicable only to domestic C corporations, except for individuals making a Section 962 election.
Our panel will unravel the complexities and provide valuable takeaways. Questions will be taken as time permits.
William K. Norman, Norman & Zak
Polina Chapiro, Green Hasson Janks
Bryan Kelly, Withers Worldwide