Treasury Issues Final Regulations for GILTI and FDII Under Section 250

On July 9, 2020, final regulations (Final Regulations) were released by the U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) related to the new Section 250 deduction allowed for a U.S. C-corporation’s foreign derived intangible income (FDII) and global intangible low-taxed income (GILTI) (Treasury Decision 9901). Enacted on Dec. 22, 2017, the Tax Cuts and Jobs Act (TCJA) afforded domestic corporate taxpayers with a deduction designed to incentivize certain export activities determined to have a foreign use by granting such taxpayers with the ability to claim a deduction of up to 37.5 percent of their FDII and 50 percent of their GILTI in a taxable year.

The Final Regulations arrive as a response to the proposed regulations issued by the IRS and Treasury on March 2019, the Federal Register (84 FR 8188) (the Proposed Regulations), which generally contained extensive documentation requirements for substantiating a FDII transaction and other clarifying provisions to key items effecting the overall computation and mechanics of the Section 250 deduction.

Effective for tax years beginning after Jan. 1, 2021, the Final Regulations are similar in style to the Proposed Regulations but contain several important key modifications that affect the Section 250 deduction.