David Rosenbloom Talks to Law360 on Proposed GILTI Regs' Anti-Abuse Rule Seen As Overly Broad

Proposed U.S. regulations for the global minimum tax on intangible income contain an anti-abuse provision that could allow the Internal Revenue Service to disregard the effects of certain offshore transactions even if there aren’t signs of tax avoidance, specialists say.

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For example, the proposed regulations say that for the purposes of calculating deductions from a CFC’s income, the entity will be treated as if it were a domestic corporation. That’s not a particularly startling proposition, according to David Rosenbloom of Caplin & Drysdale, Chtd.

He noted that under the pre-TCJA regime for Subpart F, or non-deferred overseas income, the standard for deductibility at a CFC level was to treat it as if it were a domestic corporation.

“Since the statute is meant to parallel Subpart F, I would expect the same rule to apply,” he said.

Rosenbloom said he would have thought Treasury’s statement in the rules about deductions from CFC income would have determined the treatment of related provisions, including Internal Revenue Code Section 163(j) , which limits the interest businesses can deduct annually. Yet the proposed regulations said Section 163(j) and other measures would be addressed in future guidance.

“If your principle is you follow what’s going on with the domestic corporation, I don’t see how you can reach a different result with respect to those new limitations on deductions for domestic corporations, but I guess we’ll see,” he said.

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Excerpt taken from the article “Proposed GILTI Regs' Anti-Abuse Rule Seen As Overly Broad” by Natalie Olivo for Law360.