On September 13, 2018, the United States Treasury Department released proposed regulations (REG-104390-18) under the Global Intangible Low-Taxed Income (GILTI) regime enacted in December 2017 as part of the law commonly known as the "Tax Cuts and Jobs Act." The regulations package also includes proposed amendments and additions to the "subpart F income" and consolidated return regulations.

Under the GILTI regime, a "United States shareholder" of one or more "controlled foreign corporations" (CFCs) generally must include currently in gross income its pro rata share of the net profits of those CFCs to the extent that the profits exceed a routine return on certain tangible depreciable assets held by the CFCs. For a corporate US shareholder, the inclusion is subject to US federal income taxation at a 21% tax rate, but it is generally eligible for a 50% deduction (resulting in an effective tax rate of 10.5%). Generally, a corporate US shareholder may take as a credit against its GILTI tax liability 80% of its pro rata share of the non-US income taxes "properly attributable" to the portion of positive profits of its CFCs that it included in income (subject to certain other limitations).

The proposed regulations include provisions:

— Describing how to calculate the fundamental elements underlying the GILTI inclusion (e.g., "tested income" and "QBAI")

— Setting out anti-abuse rules for certain basis "step-up" transactions for purposes of the GILTI regime

— Revising the definition of "pro rata share," for purposes of inclusions of both GILTI and subpart F income

— Describing how consolidated groups compute their GILTI inclusions (including a rule generally requiring a consolidated group to compute its GILTI inclusion as a group, rather than member-by-member)

— Adopting a hybrid "aggregate/entity" approach to US partnerships and their partners for purposes of the GILTI regime

A comprehensive Tax Alert is forthcoming, and a webcast is scheduled for Thursday, September 20, 2018, from 3 p.m. — 4:30 p.m. EST. To register for the webcast, click here.