During a Treasury and IRS public hearing on February 13, 2019, on "Guidance Related to Section 951A (Global Intangible Low-Taxed Income)," officials heard from two commenters on the impact of the recent Section 951A regulations and their recommendations for the final regulations. While a number of IRS and Treasury officials attended the hearing, none of them commented on the testimony provided by the witnesses.

The panel of IRS and Treasury officials at the hearing included: John J. Merrick, Senior Level Counsel, IRS Office of Associate Chief Counsel (International); Jeffery G. Mitchell, Branch Chief, Branch 2, IRS Office of Associate Chief Counsel (International); Melinda Harvey, Senior Counsel, Branch 2, IRS Office of Associate Chief Counsel (International); Kevin M. Jacobs, Senior Technician Reviewer, IRS Office of Associate Chief Counsel (Corporate); and, Gary Scanlon, Attorney-Advisor, Office of the International Tax Counsel, U.S. Department of the Treasury.

Witnesses at the hearing were:

• Stewart Lipeles, Baker & McKenzie, LLP
• Catherine Schultz, National Foreign Trade Council

Stewart Lipeles argued that the anti-abuse rule under section 1.951-3(h)(2) of the GILTI regulations — what he referred to as the "disqualified period rule" — is invalid because it is inconsistent with the effective date in the statute and goes beyond the scope of congressional authority. The rule states that the tax basis of specified tangible property that arises from a disqualified transfer is not taken into account when calculating a taxpayer's qualified business asset investment, or QBAI. If the rule is not eliminated, a transaction between related CFCs that results in a stepped-up basis before the effective date of Section 951A and after December 31, 2017, is not included in QBAI and therefore does not result in a reduction in GILTI. Mr. Lipeles recommended that the rule be withdrawn from the final regulations.

On behalf of the National Foreign Trade Council, Catherine Schultz argued that the rule that only high-taxed income is excluded from tested income if such high-taxed income would otherwise be subpart F income is too narrow and leads to counterintuitive results. High-taxed income included under GILTI, she said, can lead to a tax rate that exceeds the 21% US corporate rate once expenses are allocated to the GILTI basket and GILTI foreign tax credits are taxed a second time under the BEAT rules. Ms. Schultz recommended that the rules include a GILTI high-tax exception for income subject to a foreign tax rate of at least 13.125%, and determined either on a CFC-by-CFC basis or an item of income-by-item of income basis to ensure the GILTI rules are consistent with Congressional intent.

Second, she recommended that the GILTI rules should make clear that Section 245A applies to subpart F dividend income received by CFCs in addition to domestic corporations. Treasury requested comment in the proposed rules on whether the dividends received deduction under Section 245A should apply to CFCs. If not, she argued, multinational corporations will be disadvantaged by foreign competitors.

Finally, Ms. Schultz recommended that the basis adjustment rules that require a reduction in the stock basis of a CFC by its net used tested loss amount be eliminated. She argued not only that any basis adjustments due to net used tested losses would be administratively burdensome, but also that tested losses generate at most a 10.5% tax benefit, or for a taxpayer with excess GILTI limitation, no tax benefit.

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