1 1 (April 10, 2020)

handle is hein.crs/govcuyq0001 and id is 1 raw text is: 

               Researh Sevice

Interaction of International Tax Provisions

with Business Provisions in the CARES Act

Updated April 10, 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 certain 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
referred to as Subpart F income.)

                                                               Congressional Research Service

PrOpared fcr Members nd

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