Proposed FDII Regulations Bring Some Clarity

On March 4 Treasury and the IRS released the highly anticipated proposed foreign-derived intangible income regulations (REG-104464-18) under section 250. That section provides a deduction against a domestic corporation’s income from foreign property sales and provision of services to foreign persons that results in an effective tax rate on that income of 13.125 percent through 2025 and 16.4 percent thereafter. FDII was enacted as part of the Tax Cuts and Jobs Act and is a corollary to the new global intangible low-taxed income regime. FDII is intended to encourage U.S. corporations to earn foreign sales and services income directly or through a foreign subsidiary — or at least make them indifferent to that structure. The proposed FDII regulations address several questions taxpayers have been waiting to receive clarity on; some of the major topics are outlined in this article.

Originally published in Tax Notes International on April 8, 2019.