IRS Regulations Clarify 250A Deduction for Individual Owners of Non-U.S. Corporations Subject to GILTI

Andersen Tax in Canada

March 5 2019 | 09:00

March 5 2019

Last fall, we wrote about the U.S.’s Global Intangible Low Taxed Income (“GILTI”) and its’ adverse tax impact on U.S. persons that own non-U.S. corporations.  

GILTI impacts U.S. persons resident in Canada who own Canadian and other non-U.S. corporations. Without effective tax planning, combined U.S. and Canadian tax rates approaching 85% could occur as early as 2018. 

Our original blog entry can be found HERE.

One of the concerns tax practitioners have regarding GILTI is its application to individual shareholders that are U.S. persons.  U.S. corporations subject to GILTI are eligible for a 50% deduction under Internal Revenue Code Section 250A. However, uncertainty over a claim for this 50% deduction has existed for individuals who make an election under Internal Revenue Code Section 962 to be treated as a corporation.  

On March 4, 2019, the IRS released proposed regulations to address many issues regarding GILTI.   These proposed regulations clarify that individuals subject to the GILTI inclusion that make an election under Section 962 are eligible for the 50% deduction under Section 250A.  This is welcome news for many U.S. citizens resident in Canada who own Canadian corporations as it will help lower the overall US tax liability where GILTI applies while still enabling eligible Canadian corporations to pay the small business corporate tax rate (currently ranging from 11-13%)

We can help you determine the effect of GILTI on you. Please contact: