Treasury finalized rules allowing the retroactive option based on the legal language of the 2017 tax overhaul, Wade Sutton, deputy international tax counsel at Treasury's Office of Tax Policy, said during the webinar held by the International Tax Institute. But corporate taxpayers have also told Treasury that the high-tax exception to the tax on global intangible low-taxed income — which is a notoriously difficult regime for loss-making companies — will help them access some of the benefits of the Coronavirus Aid, Relief and Economic Security Act , passed in March.
"On the one side, if this is the interpretation of the statute today, it should also be the interpretation for [2018 and 2019], those other relevant, past taxable years," Sutton said. "But I will tell you that in light of the losses folks are experiencing after COVID, this retroactively seems to be a much more important thing for people with net operating losses in 2020."
Under the Tax Cuts and Jobs Act , offshore income determined to be GILTI is immediately taxed at a 10.5% rate. The provision acts as an antiabuse backstop to the law, blunting the ability of companies to move income from intangible assets offshore, in theory. To achieve the 10.5% rate, the income is granted a 50% deduction from the overall corporate rate of 21%.
But that deduction can't be carried forward or backward — companies must use it the year it is earned, or they lose it. This disadvantages struggling companies trying to rebound, critics claim, and the issue has become more pronounced since the pandemic sparked a global recession.
The coronavirus aid bill allows companies to carry 2020 losses back as far as five years, to use against past profits. But for those with high GILTI tax payments, shifting those losses back will mean they can use less of the 50% GILTI deduction.
Treasury proposed a high-tax exception to GILTI last year, as taxpayers complained to the department that the foreign tax credit limitations create high GILTI liabilities on income that has already been substantially taxed by foreign jurisdictions.
The original proposed regulations could only be used prospectively. But the final regulations issued in July allow it to be applied to 2018 or 2019 income as well, letting companies access the coronavirus aid bill benefits by removing GILTI payments entirely from those years.
"Being able to exclude this high-taxed income, we are learning, is a very valuable asset so that you can carry back the NOLs to prior tax years, without having to absorb GILTI," Sutton said.
The rules will take effect Sept. 21.
Treasury did not respond to a request for further comment.
--Editing by Neil Cohen.
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