How is the GILTI High-Tax Exemption Treated for Purposes of Section 959?
By Anthony Diosdi Recently, the Internal Revenue Service (“IRS”) and the Department of Treasury finalized regulations which allows certain shareholders to make a high tax exception to GILTI inclusions. This exception applies to the extent that the net tested income of a controlled foreign corporation (“CFC”) exceeds 90 percent of the U.S. federal corporate income tax rate. Thus, if the effective foreign tax rate exceeds 18.9 percent, a CFC shareholder can elect to make a high tax exemption. This option allows CFC shareholders to defer the recognition of undistributed GILTI income (and subpart F income) as earnings and profits (“E&P”). The high tax exception can be a very effective tax planning tool. Claiming a high tax exception can also pose a significant compliance challenge. Where the E&P of a CFC…