US: Final and Proposed Regulations Regarding Foreign Tax Credits and Base Erosion and Anti-abuse Tax

; posted on
December 3rd, 2019

US Treasury and IRS have issued proposed and final regulations relating to Foreign Tax Credits (FTC) and the Base Erosion and Anti-abuse Tax (BEAT). These are significant international tax provisions of the Tax Cuts and Jobs Act (TCJA).

BEAT

The final rules of the BEAT (TD9885) are designed to prevent US multinationals from moving profits offshore. They also provide reporting requirements related to this tax. The set of rules finalises the proposed regulations that were published on December 21, 2018. Corporations with substantial gross receipts that make payments to foreign related parties are affected. In addition, any reporting corporations are affected that are required to furnish information relating to certain related party transactions and information relating to a trade or business conducted within the US by a foreign corporation. The IRS also issued a new set of proposed rules (REG-112607-19) that provides guidance regarding the BEAT imposed on large corporate taxpayers with respect to certain payments made to foreign related parties.

FTC

The final regulations of FTC (TD9882) provide guidance relating to the determination of the foreign tax credit under the Internal Revenue Code. This document finalises the proposed regulations that were published on December 7, 2018. It also finalises proposed regulations on overall foreign losses that were published in 2012, and certain portions of proposed regulations published in 2007, relating to a US taxpayer’s obligation to notify the IRS of a foreign tax redetermination. The final regulations retain the basic approach and structure of the 2018 FTC proposed regulations, with certain revisions. In addition, the IRS issued proposed regulations (REG-105495-19) that provide guidance relating to the allocation and apportionment of deductions and creditable foreign taxes, the definition of financial services income, foreign tax redeterminations, availability of foreign tax credits under the transition tax, and the application of the foreign tax credit limitation to consolidated groups.

BEAT: TD9885   BEAT: REG-112607-19   FTC: TD9882   FTC: REG-105495-19

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