Bill Would Exclude US Territories, Possessions From GILTI Regime

On May 4, 2020, a bill was introduced in the United States House of Representatives to limit the impact of the Global Intangible Low Tax Income (GILTI) regime on businesses based in US territories and possessions.

According to Stacey E. Plaskett, who represents the US Virgin Islands in the House, US tax laws have traditionally treated investments in US territories and possessions more favorably than in other foreign jurisdictions. However, under the GILTI tax, introduced by the 2017 Tax Cuts and Jobs Act, territories and possessions are treated the same as foreign countries, negatively impacting investment in these places.

The GILTI rules are intended to discourage US corporations from shifting high-yielding intangible assets such as intellectual property rights to low-tax jurisdictions. GILTI is defined as the portion of the income of a controlled foreign corporation (CFC) owned by US shareholders that exceeds a notional 10 percent return – a rate that is intended to reflect the normal rate of return on tangible assets. After a 50 percent deduction, GILTI is subject to an effective corporate tax rate of 10.5 percent.

Under the bill, a possession means Puerto Rico, the US Virgin Islands, and any specified possession described in section 931(c) of the Internal Revenue Code.

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