Is the Tax Cuts and Jobs Act GILTI of Anti-Simplification?
70 Pages Posted: 30 Oct 2019
Date Written: April 12, 2019
In December 2017, Congress enacted tax reform legislation, commonly referred to as the “Tax Cuts and Jobs Act” or “TCJA,” which fundamentally changed the United States’ international corporate taxation system. The TCJA was enacted quickly; the bill was signed into law less than 2 months after the House of Representatives introduced it. Since that time, tax professionals across the United States and around the world have worked overtime to try to understand the new tax laws. Now that the U.S. Treasury Department is releasing and requesting comments on proposed tax regulations, practitioners must have a thorough understanding of the TCJA. This paper attempts to reduce the complexity of the TCJA’s international tax provisions by examining global intangible low-taxed income (“GILTI”) and its interaction with other provisions that implement income taxation of cross border corporations. First, this article outlines corporate income taxation after the TCJA’s enactment, and demonstrates how GILTI, the Section 245A deduction, and the other international tax law provisions are integrated into the corporation income tax scheme. Second, a hypothetical cross border corporation is analyzed to demonstrate the calculation of income tax, including the determination of GILTI, Section 245A deductions, and the foreign tax credit. Third, the article highlights how the current tax system, after the TCJA, is really a hybrid system where some income is taxed as part of the exemption or territorial tax system, while other amounts are still taxed as part of the worldwide tax/foreign tax credit system, which significantly increases the complexity of the United States’ international corporate income tax regime.
Keywords: Tax Cuts and Jobs Act, TCJA, Global Intangible Low-Taxed Income, GILTI, Section 951A, International Tax, Corporation Tax, Foreign Tax Credit, FTC, Previously Taxed Income, Section 959, Territorial Taxation, Exemption System
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