A new “flexible approach” addresses concerns about documentation and unnatural adjustments to accepted business practices.

 Last month, on July 9, to be exact, the U.S. Treasury Department and the IRS officially rolled out final regulations under IRS tax code Section 250, providing updated guidance on the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).

The final regulations (T.D. 9901, 85 Fed. Reg. 43042) were published in the Federal Register on July 15, 2020. Generally speaking, the revised regulations reduce certain documentation requirements and provide greater flexibility and further clarifications in areas such as the taxable income limitation.

Because the final regulations do not apply until 2021, clients and their tax preparation providers have additional time to implement new policies and procedures.  That being said, the new regulations come with new rules — to advertising services and electronically supplied services, for example, these new rules will undoubtedly result in new issues and questions for those businesses and individuals impacted by GILTI and FDII.

The IRS’ new and more flexible stance is a result of concerns raised that documentation requirements of the previously proposed regulations could mandate major and unreasonable changes to already-established business processes, potentially damaging customer relationships, and thus, business in general.

Despite the relaxation of some rules, transactional categories such as: general property sales to resellers and manufacturers, sales of intangible property, and the performance of general services to business recipients are still subject to specific substantiation requirements which may require a business to make contractual changes and/or elicit additional information from customers in order to do busines

Further Information on GILTI, FDII and the Tax Code Section 250

“Elevator Explanation” of FDII

IRS Section 250(a)(1)(A) permits a domestic corporation to take a deduction equal to 37.5 percent of its FDII.  In broad terms, a domestic corporation’s FDII is considered to be the amount of its intangible income from sales, lease, or licensing of property to persons located outside of the U.S., OR from services provided to persons located outside of the U.S. Export sales would be one example.

“Elevator Explanation” of GILTI

GILTI is a new category of income specifically designated for U.S. taxpayers that own a controlled foreign corporation (CFC). In general terms, all income of a CFC amounting to more than 10 percent return on a CFC’s basis in tangible depreciable property, with a few exceptions, is GILTI. The GILTI provisions commenced for CFC’s tax years after Dec. 31, 2017. The proposed regulations on computation of GILTI income were published on Oct. 10, 2018 in the Federal Register.

Need help navigating the new FIIDI and GILTI regulations and how they apply to your tax responsibilities? Contact us to set up a Zoom meeting or a phone call, or email us for more information.

Other Publications with Information and Summaries on IRS Tax Code 250

IRS

Federal Register

Accounting Today

JD Supra

National Law Review

Further  resources from the International Wealth Tax Advisors Web Site

https://iwtas.com/gilti-tax-and-foreign-trust-corps/

https://iwtas.com/services/real-estate-and-foreign-investment/

https://iwtas.com/services/nra-tax-planning/