Close the Round-Tripping Loophole Act
The Close the Round-Tripping Loophole Act overhauls how Global Intangible Low-Taxed Income (GILTI) is calculated and limited for purposes of the GILTI inclusion and the Section 250 deduction. It creates a new “round-tripping ratio” to identify income that is round-tripped through certain foreign-use property or services, and it uses that ratio to reduce the amount of GILTI that can be included in U.S. taxable income and the related deduction. In short, if a company appears to route income through foreign-use transactions to avoid taxes, the bill tightens the tax treatment by shrinking the deductible benefit associated with GILTI. The rule includes a special exemption for small taxpayers and applies to foreign corporations’ tax years after enactment (and to U.S. shareholders in years ending with those foreign years).
Key Points
- 1Introduces a new round-tripping ratio to measure the extent to which a U.S. shareholder’s income is round-tripped through certain foreign-use property or services before being included as GILTI.
- 2Changes the calculation under 951A(b)(2)(A) by replacing a simple 10% amount with 10% of the excess of the aggregate GILTI-related amount over a product that multiplies that amount by the round-tripping ratio.
- 3Adds Section 951A(b)(3) to define the round-tripping ratio (as the percentage, capped at 100%, of round-tripped net CFC tested income to net CFC tested income) and details how to compute the numerator (round-tripped income) and denominator (total tested income), including an exception for small filers.
- 4Provides an exception for certain small U.S. shareholders: if average annual gross receipts over the prior 3-year period do not exceed $100 million, the round-tripping ratio is treated as 0%.
- 5Modifies the Section 250 deduction (50% GILTI deduction) to limit the deduction to 50% of the excess amount after subtracting the round-tripping portion (i.e., 50% of the GILTI amount plus any related dividends, reduced by the round-tripping ratio portion).
- 6Effective dates: applies to tax years of foreign corporations beginning after enactment, and to tax years of U.S. shareholders ending in those foreign years.