The Participation Exemption Rules Available for Domestic Corporations to Avoid GILTI Inclusions and a Discussion Regarding the Anti-Hybrid Limitations to the Participation Exemption Rules
By Anthony Diosdi Many domestic corporations own foreign corporations that result in significant Subpart F and/or global intangible low-taxed income (“GILTI”) inclusions. With proper planning, a domestic corporation can avoid Subpart F and GILTI tax liability on foreign source income received from a foreign branch or controlled foreign corporation (“CFC”). Prior to the 2017 Tax Cuts and Jobs Act, dividends from foreign corporations out of foreign earnings that had not been previously taxed by the United States were usually taxable to the shareholders. The 2017 Tax Cuts and Jobs Act resulted in the enactment of Internal Revenue Code Section 245A. This Internal Revenue provision allows for an exemption from certain foreign income of a domestic corporation that is a shareholder by means of a 100 percent dividend received deduction (“DRD”)…