Repatriation / GILTI Tax Open Discussion

I would like to gain the community's perspective on what they are finding with the Repatriation Tax/GILTI. I will start with some of my own findings.

1. There was a rush to put US taxpayers individuals with CFCs in S-Corps by 12/31/17 in order to defer the repatriation tax. While this might be a good idea for repatriation tax purposes because the repatriation tax would only be triggered by certain events, this is a bad idea for GILTI because the S-Corp is not eligible to receive the 50% reduction in GILTI income or FTCs, which seems to have made the whole exercise pointless.

2. The Sec. 962 election which enables US Taxpayer to be treated as a corp for SubF purposes, does not provide any benefits for GILTI tax. So, there should be a rush to set up a US C corp and transfer foreign shares into it, rather than relying on the 962 election, which is due on next year's return.

3. CFCs in non-treaty countries could realize a very high ETR because they dont get qualified dividends.

4. There are different views on whether you use corporate rates of 15% and 8% or a higher derived individual rate for a US taxpayer. The code only refers to corporate rates, but that makes no sense because you are applying corporate rates to individuals.

Hi,

Anyone follows this topic???

I would like any analysis on the 962 election and the implications for later tax years on the shareholder. My client is an expat, dual citizen who lives & works abroad. He owns 2 foreign corporations. The 962 election would allow him to use the U.K. corporate taxes he’s paid since he formed the corps 15-20 years ago to offset the repatriation tax. The U.K. corporate tax rate does allow him to squeak by being subject to GILTI.

I am holding off on advising clients to transfer shares of a CFC to a C corporation in order to mitigate GILTI. I have heard a C corporation described as a "roach motel", meaning they are easy to get into but hard to get out of, from a tax perspective. Also, C corporations create possible additional problems because of the personal holding company rules and the AET rules.

I am hopeful the IRS will issue regulations permitting the 50% deduction for GILTI with the 962 election. Right now, I am hesitant to recommend transferring the shares of a CFC to a C corp just to get the 50% GILTI deduction because if we get the 50% deduction with the 962 election, it will likely not be worth it. But if we don't get the 50% deduction with the 962 election, the C corporation structure will have to be a serious consideration.

The OP is correct in that taxable dividends from a CFC located in a nontreaty country in excess of PTI will be subject to the very high individual tax rate on nonqualified dividends. This might be another reason to consider holding a CFC through a domestic C corp. However, again, remember that you must account for the personal holding company rules and the AET rules in the analysis.

The U.K. corporate tax rate does allow him to squeak by being subject to GILTI.

How does the UK corporate rate allow him to not be subject to GILTI?

How does the UK corporate rate allow him to not be subject to GILTI?

Editing my initial reply. With the 962 election, I believe the deemed paid credit for UK tax paid would reduce the U.S. tax from GILTI, but not completely eliminate it.

I read that the definition of a ‘low tax country’ is one with a lower corporate tax rate than 18.9%. The U.K. corporate tax rate is 19%

There is no such thing as a low tax country under GILTI. It would fully apply to the UK as it does to every other country. As supdat mentions, making a 962 election might make sense, but that is just so that the GILTI is taxed at corporate rates.