The Subpart F high-tax exception before and after tax reform

• Published in: The Tax Adviser 2019-06, Vol.50 (6), p.411-414
• Main Authors: Bloom, Brett M, Rasch, Barbara E
• Format: Article
• Language: English
• Subjects: Controlled foreign corporations; Corporate taxes; Earnings; Foreign source income; Foreign tax credits; Income taxes; Mechanics; Personal holding companies; Tax credits; Tax Cuts & Jobs Act 2017-US; Tax rates
• ISSN: 0039-9957

[...]when this exception is applied, the U.S. group would not be subject to current tax under either the Subpart F or GILTI rules, and the CFC could have untaxed earnings that may be eligible for the Sec. 245A deduction when distributed to the U.S. group. [...]more significantly, the Sec. 902 pooling regime for foreign taxes was repealed, and Sec. 960 was amended to require a direct association of current-year foreign income taxes with particular CFC income items for purposes of determining deemed paid foreign tax credits related to Subpart F inclusions and GILTI inclusions. [...]of this pooling approach for foreign income taxes, the Japanese and Irish taxes would be blended, and both items of income would satisfy the high-tax exception (provided USP made a valid election to apply the high-tax exception). [...]DutchCo's Subpart F income related to JapanCo's operations would continue to qualify for the high-tax exception, as the effective tax rate paid in Japan would be 40% ($500 -ť $1,250) (provided USP makes a valid election to apply the high-tax exception).