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July 9, 2020

BREAKING TAX NEWS | Final FDII/GILTI regulations released for publication

On July 9, 2020, the Treasury Department released final regulations (TD 9901) under IRC Section 250, which allows an annual deduction to a domestic corporation for its foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) inclusion. The final regulations are scheduled for publication in the Federal Register on July 15, 2020.

The final regulations retain the basic approach and structure of the proposed regulations published on March 6, 2019 (see Tax Alert 2019-0500) but contain several significant, and mostly taxpayer-favorable, changes. For example, the final regulations:

  • Modify the documentation requirements for establishing foreign use to no longer require taxpayers to obtain specific documentation to establish (i) foreign person status; (ii) foreign use with respect to sales of certain property sold directly to end users; or (iii) the location of certain services provided to consumers
  • Provide that the following are presumed made to a foreign person: (1) foreign retail sales; (2) sales of general property delivered to an address outside the United States; (3) other sales of general property to recipients whose billing address is outside the United States; and (4) sales of intangible property to recipients whose billing address is outside the United States
  • Deem a sale of general property to be for a foreign use if (i) the property is subject to manufacturing, assembly or other processing outside the United States; or (ii) the property is, in specified cases, delivered to an end user (e.g., a foreign retail sale, property delivered to a location outside the United States, or an electronic transfer of digital content outside the United States)
  • Deem a sale of intangible property to be for a foreign use if the end user of the intangible is located outside the United States, including when the intangible is used to provide a service outside the United States
  • Relax certain provisions that apply to limit a deduction for related-party sales that are followed by unrelated-party sales

The final regulations generally apply only to tax years beginning on or after January 1, 2021. For tax years beginning before January 1, 2021, taxpayers may apply the final regulations or rely on the proposed regulations (including the documentation transition rule whereby a transaction may be substantiated by any reasonable documentation maintained in the ordinary course).

A more detailed Tax Alert and a webcast invitation are forthcoming.