It's All About the DRD, What's Wrong with Foreign Branches, and a Few Other Things You Should Know About the New International Tax Provisions

Abstract

This Article highlights and analyzes some important points about the new international tax rules. For example, such provisions do not create an entirely territorial system. The partial movement towards territorial objectives is accomplished largely through the new 100% dividends received deduction (DRD) for certain foreign dividends from foreign corporations. However, this new DRD is much more limited in its application than most taxpayers may realize (for example, due to a very long holding period requirement). Even when the DRD potentially applies, taxpayers may attempt to claim foreign tax credits instead.

In addition, some of the new tax provisions show a surprising distaste for foreign branches, which are rather broadly defined. Further, GILTI (global intangible low taxed income) is misnamed — it fails to accurately measure either intangible-related or low-taxed income. Lastly, the new international tax provisions (and their interaction with the new, 100% current year depreciation deduction) may create undesirable incentives regarding the movement of tangible assets.

Keywords: tax, TCJA, foreign branch, FDII, GILTI, DRD

JEL Classification: K