On 1 September 2026, the Department of the Treasury and the IRS released proposed regulations (REG-XXXXXX) that would fundamentally revise the calculation of a US shareholder’s pro rata share of a controlled foreign corporation’s (CFC) tested income and tested loss for purposes of the Section 951A global intangible low-taxed income (GILTI) regime. The proposed rules address long-standing ambiguities in the attribution of income and losses among CFCs within a controlled group, particularly when CFCs have different tax year-ends, ownership chains, or functional currencies. The regulations also introduce new coordination rules with the Section 965 transition tax and the Section 245A dividends-received deduction. Comments are due within 60 days, and the rules are proposed to apply to tax years of CFCs beginning after the date of finalization.
Key Takeaways
- Look-Through Approach for Tiered Ownership: The proposed regulations adopt a look-through approach for determining a US shareholder’s pro rata share when CFCs are owned through chains of multiple foreign corporations, replacing the current “first-tier” focus. This may increase or decrease GILTI inclusions depending on the structure.
- Alignment of Tax Year-Ends: New rules require the use of a common tax year-end for all CFCs in a controlled group for GILTI computation purposes, eliminating timing mismatches that currently allow deferral or acceleration of inclusions. Taxpayers may need to change the tax year of certain foreign entities.
- Impact on Foreign Tax Credit Planning: The revised pro rata share calculations directly affect the Section 960 foreign tax credit deemed-paid calculations, potentially altering the pool of creditable foreign taxes. Multinationals should model the impact on their overall foreign tax credit position and consider restructuring to optimize credit utilization.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement