Book, Tax Timing Mismatches May Linger Under Global Deal

Book, Tax Timing Mismatches May Linger Under Global Deal

June 14, 2023, Law360

Ansgar Simon's commentary appeared in a Law360 article about an international minimum tax agreement and a few remaining wrinkles that may create risk of lost credits and additional taxes.

For U.S. corporations, timing differences may clash with the Internal Revenue Code's regime for global intangible low-taxed income, or GILTI, which doesn't allow companies to carry foreign tax credits into different years. Accordingly, any credits that U.S. companies may receive for paying the international deal's qualified domestic minimum top-up tax, or QDMTT, wouldn't offset GILTI liabilities if the U.S. tax system recognizes the underlying income in a different year than the international regime's book system.

According to Ansgar, companies may end up getting a credit for the QDMTT in a different year than the related economic event that also triggered taxes under the GILTI regime. There could potentially be more QDMTT, which follows book income, and less GILTI, leading to situations with excess tax credits."

"Currently, you can't carry them forward or back under the GILTI regime," Ansgar said. "These tax credits, you use them or lose them."

In addition, according to Ansgar, the QDMTT is a tax on income — similar to the U.S. corporate alternative minimum tax — and should qualify for a foreign tax credit in the U.S. when companies have nexus, or a taxable presence, in the jurisdiction. Parent companies could be eligible for the credit when the same income is also taxed under their home country's CFC regime, such as GILTI, Ansgar said.

"The QDMTT should come before our CFC regime," Ansgar stated. "In the same manner as any local tax really comes first, we provide a tax credit to the extent there's the relevant nexus."

In a similar vein, Ansgar said companies can reattribute GILTI taxes to get up the overall tax rate of a CFC, but they may still have more income in the book base than they would in the tax base from the U.S. GILTI perspective. The CFC's affiliates may accordingly be exposed to the UTPR or the IIR, which generally wouldn't qualify for tax credits, he said.

"They're not intended to be creditable," Ansgar believed. "You'd have to probably develop a whole new way of planning."