TAX 9869 Lecture Notes - Lecture 53: Interest Expense, Gross Income, Foreign Tax Credit

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11 Aug 2020
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Section 951A: Global Intangible Low-Taxed Income (“GILTI”)
GILTI = Net CFC Tested Income [(10% x QBAI) Net Interest Expense]
Net CFC Tested Income = CFC Tested Income CFC Tested Loss
(10% * QBAI= Qualified Business Asset Investment- Interest Income over Interest Expense)
Net interest expense = Interest Income over Interest Expense
^^ Net deemed tangible return means that the CFC is actually using its earnings to reinvest in
tangible assets
o Whatever Net CFC tested income- 10% QBAI- net interest expense= GILTI amt
o QBAI- FDI= deduction for US corp
o GILTI= CFC income
o 10% of QBAI are the assets of the CFC
o 10% of the asset basis is the deemed tangible return
o You lose some of the benefit if you have interest expense > interest income
o Possible for a USSH to own multiple CFCs, if so, he computes his tested income for
each CFC, sometimes, may compute tested income to be a loss
o Then combine all of them- 3 CFCs, 2 have positive income, 1 has a loss, net 2, pick
up my net CFC tested income= net amount
o Loss of 1 CFC can offset CFC of other in GILTI income
o Tested income- sum of tested income over CFC loss
o Go through US tax principles
o However you would compute taxable income/loss of a US C corp for US tax
purposes, same way
There are adj book-tax:
- meals & entertainment
- interest expense limitation- changed 163j- only able to deduct certain amt of
interest exp- 30% (raised w/CARES act)
Since some limitation formulas, take them and interest expense into account when
computing interest income/loss, may not be able to deduct all of it, under US tax
principles
Compute tested income/loss, net together
Take assets, 10% of QBAI, the tax basis of depreciable, tangible assets 10% of that=
net deemed intangible return- net interest expense
Have to be given to you on exam to figure out GILTI
As a note, when doing dep expense for CFC can’t use accel depreciation type
calculations
use ADS SL dep
Section 951A: Global Intangible Low-Taxed Income (“GILTI”)
Framework
•Net CFC tested income: The excess (if any) of the aggregate tested income of each CFC less
the aggregate tested loss of each CFC.
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