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1 1 (April 6, 2020)

handle is hein.crs/goveaxa0001 and id is 1 raw text is: Congressional____ a Research Service Interaction of International Tax Provisions with Business Provisions in the CARES Act April 6, 2020 The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) included two general tax benefits for business: net operating losses (NOLs) and interest deductions, which reduce taxable income and tax liability. These provisions may interact with existing international tax provisions enacted in the 2017 tax revision, popularly known as the Tax Cuts and Jobs Act, or TCJA (P.L. 115-97). The TCJA also decreased tax rates, including reducing the corporate rate from 35% to 21%. International Provisions in the TCJA In transitioning from the prior international tax regime that taxed earnings of foreign subsidiaries controlled by U.S. firms only when repatriated (paid as a dividend, with credits allowed for foreign taxes up to the U.S. tax paid on foreign source income) to a system that exempted dividends but taxed some foreign income currently, the TCJA imposed a transition (repatriation) tax (at 15.5% for cash and 8% for other earnings) on accumulated untaxed earnings abroad (with proportional foreign tax credits allowed). Firms could elect to spread the tax (a section 965 tax) over eight years. The TCJA also enacted three regimes to address international profit-shifting. The global intangible low taxed income (GILTI) provision imposes a tax on foreign subsidiary income, after deducting a deemed return on tangible assets. A deduction of 50% is allowed for the remainder, with 80% of foreign taxes credited. A deduction is also allowed for domestic foreign derived intangible income (FDII), to equalize the treatment of intangible assets held domestically and abroad. The combined GILTI and FDII deductions (under section 250) cannot exceed taxable income. The base erosion and anti-abuse tax (BEAT) is a minimum tax applied to a base that adds back a number of deductions for payments to related foreign parties and taxes the larger base at 10% (5% in 2018). BEAT applies to large firms with base erosion payments of 3% or more of deductions. (Some income of foreign subsidiaries that is easily shifted is currently taxed fully under both systems; this income is termed Subpart F income.) Congressional Research Service https://crsreports.congress.gov IN11314 CRS INSIGHT Prepared for Members and Committees of Congress

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