Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception, 28426-28427 [2019-12441]

Download as PDF 28426 Federal Register / Vol. 84, No. 117 / Tuesday, June 18, 2019 / Proposed Rules and/or requests for a hearing Regina Johnson at (202) 317–6901 (not toll-free numbers). SUPPLEMENTARY INFORMATION: DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 Background and Explanation of Provisions [REG–106282–18] RIN 1545–BP35 Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations. jbell on DSK3GLQ082PROD with PROPOSALS2 AGENCY: SUMMARY: The Rules and Regulations section of this issue of the Federal Register contains temporary regulations under the Internal Revenue Code (the ‘‘Code’’) that limit the dividends received deduction available for certain dividends received from current or former controlled foreign corporations. The temporary regulations also contain rules that limit the applicability of the exception to foreign personal holding company income for certain dividends received by upper-tier controlled foreign corporations from lower-tier controlled foreign corporations and temporary regulations to facilitate administration of certain rules in the temporary regulations. The temporary regulations affect certain U.S. persons that are domestic corporations that receive certain dividends from current or former controlled foreign corporations or are United States shareholders of upper-tier controlled foreign that receive certain dividends from lower-tier controlled foreign corporations. DATES: Written or electronic comments and requests for a public hearing must be received by September 16, 2019. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–106282–18), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be handdelivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–106282–18), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224. Alternatively, taxpayers may submit comments electronically, via the Federal eRulemaking Portal at http:// www.regulations.gov (IRS REG–106282– 18). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Logan M. Kincheloe, (202) 317–6937; concerning submission of comments VerDate Sep<11>2014 18:07 Jun 17, 2019 Jkt 247001 Temporary regulations in the Rules and Regulations section of this issue of the Federal Register amend 26 CFR 1. The temporary regulations limit the section 245A dividends received deduction for certain dividends from current or former controlled foreign corporations as well as the section 954(c)(6) exception to foreign personal holding company income for certain dividends received by an upper-tier controlled foreign corporation from a lower-tier controlled foreign corporation. The text of those regulations also serves as the text of these regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations. Special Analyses I. Paperwork Reduction Act The collections of information contained in these proposed regulations are explained in the temporary regulations under sections 245A, 954(c)(6), and 6038 published elsewhere in this issue of the Federal Register. II. Regulatory Flexibility Act It is hereby certified that this rulemaking will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). The small entities that are subject to proposed § 1.245A–5 are small entities that are U.S. shareholders of certain foreign corporations that are otherwise eligible for the section 245A deduction on distributions from the foreign corporation. Additionally, to be subject to the proposed regulations, the foreign corporation that is owned by the small entity must have engaged in certain related party transactions described in Part II.B of the Explanation of Provisions section of the preamble to the temporary regulations, or the U.S. shareholder must have transferred certain stock in the foreign corporation during the taxable year. Based on 2014 Statistics of Income tax data, the Department of the Treasury (‘‘Treasury Department’’) and the IRS estimate that there are approximately 15,000 U.S. corporations with controlled foreign corporations (‘‘CFCs’’) of which approximately half PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 (6,000–9,000) have less than $25 million in gross receipts. Not all of these corporations will be affected by the proposed regulations. In particular, only small U.S. taxpayers with fiscal year CFCs that transfer assets in related party transactions during the gap period, or U.S. taxpayers that transfer more than 10 percent of their stock of a CFC in a taxable year or U.S. taxpayers that reduce their ownership of stock of a CFC by more than 10 percent, have the potential to be affected by these regulations. The Treasury Department and the IRS have concluded that there is no significant economic impact on such entities as a result of these proposed regulations. To make this determination, the Treasury Department calculated the ratio of estimated global intangible lowed-taxed income (‘‘GILTI’’) and subpart F revenue attributable to these businesses to aggregate total sales data (Data on total sales of all U.S. parented companies are drawn from the Bureau of Economic Analysis Interactive Data accessed at this web address in December, 2018: https://apps.bea.gov/ iTable/iTable.cfm?ReqID=2&step=1) adjusted to reflect the total sales of these businesses. Projected net tax proceeds from GILTI and subpart F are estimated to be below one percent of the sales of U.S. parented multinational enterprises for 2018 through 2027. The tax thus amounts to less than 3 to 5 percent of receipts (as defined in 13 CFR 121.104), an economic impact that the Treasury Department and IRS regard as the threshold for significant under the Regulatory Flexibility Act. This calculated percentage is furthermore an upper bound on the true expected effect of the proposed regulations because not all the GILTI and subpart F revenue estimated to be attributable to small entities will be captured by the proposed regulations. Consequently, the Treasury Department and the IRS have determined that proposed § 1.245A–5 will not have a significant economic impact on a substantial number of small entities. Accordingly, it is hereby certified that the proposed rule would not have a significant economic impact on a substantial number of small entities. Notwithstanding this certification, the Treasury Department and the IRS invite comments from the public on both the number of entities affected (including whether specific industries are affected) and the economic impact of this proposed rule on small entities. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business E:\FR\FM\18JNP2.SGM 18JNP2 Federal Register / Vol. 84, No. 117 / Tuesday, June 18, 2019 / Proposed Rules Administration for comment on the impact on small businesses. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Comments and Requests for Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written or electronic comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. Comments are requested on all aspects of the proposed regulations, and specifically on the issues identified in Part II.B and Part III.A of the Explanation of Provisions section and the Parts I and II of the Special Analysis section of the preamble to the temporary regulations. All comments will be available at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, then notice of the date, time, and place for the public hearing will be published in the Federal Register. Drafting Information jbell on DSK3GLQ082PROD with PROPOSALS2 The principal author of the proposed regulations is Logan M. Kincheloe, Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development. VerDate Sep<11>2014 18:07 Jun 17, 2019 Jkt 247001 Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding sectional authorities for §§ 1.245A–5 and 1.954(c)(6)-1 in numerical order to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Section 1.245A–5 also issued under 26 U.S.C. 245A(g), 951A(a), 954(c)(6), and 965(o) * * * * * Section 1.954(c)(6)–1 also issued under 26 U.S.C. 954(c).* * * Par. 2. Reserved sections 1.245A–1 through and § 1.245A–5 are added to read as follows: ■ Sec. 1.245A–1 [Reserved]. 1.245A–2 [Reserved]. 1.245A–3 [Reserved]. 1.245A–4 [Reserved]. 1.245A–5 Limitation of section 245A deduction and section 954(c)(6) exception. § 1.245A–5 Limitation of section 245A deduction and section 954(c)(6) exception. The text of proposed § 1.245A–5 is the same as the text of § 1.245A–5T published elsewhere in this issue of the Federal Register. PO 00000 Frm 00003 Fmt 4701 Sfmt 9990 28427 ■ Par. 3. Section 1.954(c)(6)–1 is added to read as follows: § 1.954(c)(6)–1 Certain cases in which section 954(c)(6) exception not available. The text of proposed § 1.954(c)(6)-1 is the same as the text of § 1.954(c)(6)–1T published elsewhere in this issue of the Federal Register. ■ Par. 4. Section 1.6038–2 is amended by: ■ 1. Adding reserved paragraphs (f)(13) through (15) ■ 2. Adding paragraph (f)(16). ■ 3. Revising paragraph (m). The additions and revision read as follows: § 1.6038–2 Information returns required of United States persons with respect to annual accounting periods of certain foreign corporations beginning after December 31, 1962. * * * * * (f) * * * (13) through (15) [Reserved]. (16) The text of proposed § 1.6038– 2(f)(16) is the same as the text of § 1.6038–2T(f)(16) published elsewhere in this issue of the Federal Register. * * * * * (m) The text of proposed § 1.6038– 2(m) is the same as the text of § 1.6038– 2T(m) published elsewhere in this issued of the Federal Register. Kirsten Wielobob, Deputy Commissioner for Services and Enforcement. [FR Doc. 2019–12441 Filed 6–14–19; 4:15 pm] BILLING CODE 4830–01–P E:\FR\FM\18JNP2.SGM 18JNP2

Agencies

[Federal Register Volume 84, Number 117 (Tuesday, June 18, 2019)]
[Proposed Rules]
[Pages 28426-28427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12441]



[[Page 28425]]

Vol. 84

Tuesday,

No. 117

June 18, 2019

Part III





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Limitation on Deduction for Dividends Received From Certain Foreign 
Corporations and Amounts Eligible for Section 954 Look-Through 
Exception; Proposed Rule

Federal Register / Vol. 84 , No. 117 / Tuesday, June 18, 2019 / 
Proposed Rules

[[Page 28426]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-106282-18]
RIN 1545-BP35


Limitation on Deduction for Dividends Received From Certain 
Foreign Corporations and Amounts Eligible for Section 954 Look-Through 
Exception

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

-----------------------------------------------------------------------

SUMMARY: The Rules and Regulations section of this issue of the Federal 
Register contains temporary regulations under the Internal Revenue Code 
(the ``Code'') that limit the dividends received deduction available 
for certain dividends received from current or former controlled 
foreign corporations. The temporary regulations also contain rules that 
limit the applicability of the exception to foreign personal holding 
company income for certain dividends received by upper-tier controlled 
foreign corporations from lower-tier controlled foreign corporations 
and temporary regulations to facilitate administration of certain rules 
in the temporary regulations. The temporary regulations affect certain 
U.S. persons that are domestic corporations that receive certain 
dividends from current or former controlled foreign corporations or are 
United States shareholders of upper-tier controlled foreign that 
receive certain dividends from lower-tier controlled foreign 
corporations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by September 16, 2019.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-106282-18), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
106282-18), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW, Washington, DC 20224. Alternatively, taxpayers may submit 
comments electronically, via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-106282-18).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Logan M. Kincheloe, (202) 317-6937; concerning submission of comments 
and/or requests for a hearing Regina Johnson at (202) 317-6901 (not 
toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend 26 CFR 1. The temporary regulations 
limit the section 245A dividends received deduction for certain 
dividends from current or former controlled foreign corporations as 
well as the section 954(c)(6) exception to foreign personal holding 
company income for certain dividends received by an upper-tier 
controlled foreign corporation from a lower-tier controlled foreign 
corporation. The text of those regulations also serves as the text of 
these regulations. The preamble to the temporary regulations explains 
the temporary regulations and these proposed regulations.

Special Analyses

I. Paperwork Reduction Act

    The collections of information contained in these proposed 
regulations are explained in the temporary regulations under sections 
245A, 954(c)(6), and 6038 published elsewhere in this issue of the 
Federal Register.

II. Regulatory Flexibility Act

    It is hereby certified that this rulemaking will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of section 601(6) of the Regulatory Flexibility Act 
(5 U.S.C. chapter 6).
    The small entities that are subject to proposed Sec.  1.245A-5 are 
small entities that are U.S. shareholders of certain foreign 
corporations that are otherwise eligible for the section 245A deduction 
on distributions from the foreign corporation. Additionally, to be 
subject to the proposed regulations, the foreign corporation that is 
owned by the small entity must have engaged in certain related party 
transactions described in Part II.B of the Explanation of Provisions 
section of the preamble to the temporary regulations, or the U.S. 
shareholder must have transferred certain stock in the foreign 
corporation during the taxable year.
    Based on 2014 Statistics of Income tax data, the Department of the 
Treasury (``Treasury Department'') and the IRS estimate that there are 
approximately 15,000 U.S. corporations with controlled foreign 
corporations (``CFCs'') of which approximately half (6,000-9,000) have 
less than $25 million in gross receipts. Not all of these corporations 
will be affected by the proposed regulations. In particular, only small 
U.S. taxpayers with fiscal year CFCs that transfer assets in related 
party transactions during the gap period, or U.S. taxpayers that 
transfer more than 10 percent of their stock of a CFC in a taxable year 
or U.S. taxpayers that reduce their ownership of stock of a CFC by more 
than 10 percent, have the potential to be affected by these 
regulations.
    The Treasury Department and the IRS have concluded that there is no 
significant economic impact on such entities as a result of these 
proposed regulations. To make this determination, the Treasury 
Department calculated the ratio of estimated global intangible lowed-
taxed income (``GILTI'') and subpart F revenue attributable to these 
businesses to aggregate total sales data (Data on total sales of all 
U.S. parented companies are drawn from the Bureau of Economic Analysis 
Interactive Data accessed at this web address in December, 2018: 
https://apps.bea.gov/iTable/iTable.cfm?ReqID=2&step=1) adjusted to 
reflect the total sales of these businesses. Projected net tax proceeds 
from GILTI and subpart F are estimated to be below one percent of the 
sales of U.S. parented multinational enterprises for 2018 through 2027. 
The tax thus amounts to less than 3 to 5 percent of receipts (as 
defined in 13 CFR 121.104), an economic impact that the Treasury 
Department and IRS regard as the threshold for significant under the 
Regulatory Flexibility Act. This calculated percentage is furthermore 
an upper bound on the true expected effect of the proposed regulations 
because not all the GILTI and subpart F revenue estimated to be 
attributable to small entities will be captured by the proposed 
regulations. Consequently, the Treasury Department and the IRS have 
determined that proposed Sec.  1.245A-5 will not have a significant 
economic impact on a substantial number of small entities.
    Accordingly, it is hereby certified that the proposed rule would 
not have a significant economic impact on a substantial number of small 
entities. Notwithstanding this certification, the Treasury Department 
and the IRS invite comments from the public on both the number of 
entities affected (including whether specific industries are affected) 
and the economic impact of this proposed rule on small entities.
    Pursuant to section 7805(f) of the Code, these regulations have 
been submitted to the Chief Counsel for Advocacy of the Small Business

[[Page 28427]]

Administration for comment on the impact on small businesses.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written or electronic comments that 
are submitted timely to the IRS as prescribed in this preamble under 
the ADDRESSES heading. Comments are requested on all aspects of the 
proposed regulations, and specifically on the issues identified in Part 
II.B and Part III.A of the Explanation of Provisions section and the 
Parts I and II of the Special Analysis section of the preamble to the 
temporary regulations. All comments will be available at 
www.regulations.gov or upon request. A public hearing will be scheduled 
if requested in writing by any person that timely submits written 
comments. If a public hearing is scheduled, then notice of the date, 
time, and place for the public hearing will be published in the Federal 
Register.

Drafting Information

    The principal author of the proposed regulations is Logan M. 
Kincheloe, Office of Associate Chief Counsel (International). However, 
other personnel from the Treasury Department and the IRS participated 
in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
sectional authorities for Sec. Sec.  1.245A-5 and 1.954(c)(6)-1 in 
numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.245A-5 also issued under 26 U.S.C. 245A(g), 951A(a), 
954(c)(6), and 965(o)
* * * * *
    Section 1.954(c)(6)-1 also issued under 26 U.S.C. 954(c).* * *

0
Par. 2. Reserved sections 1.245A-1 through and Sec.  1.245A-5 are added 
to read as follows:
Sec.
1.245A-1 [Reserved].
1.245A-2 [Reserved].
1.245A-3 [Reserved].
1.245A-4 [Reserved].
1.245A-5 Limitation of section 245A deduction and section 954(c)(6) 
exception.


Sec.  1.245A-5  Limitation of section 245A deduction and section 
954(c)(6) exception.

    The text of proposed Sec.  1.245A-5 is the same as the text of 
Sec.  1.245A-5T published elsewhere in this issue of the Federal 
Register.
0
Par. 3. Section 1.954(c)(6)-1 is added to read as follows:


Sec.  1.954(c)(6)-1  Certain cases in which section 954(c)(6) exception 
not available.

    The text of proposed Sec.  1.954(c)(6)-1 is the same as the text of 
Sec.  1.954(c)(6)-1T published elsewhere in this issue of the Federal 
Register.
0
Par. 4. Section 1.6038-2 is amended by:
0
1. Adding reserved paragraphs (f)(13) through (15)
0
2. Adding paragraph (f)(16).
0
3. Revising paragraph (m).
    The additions and revision read as follows:


Sec.  1.6038-2  Information returns required of United States persons 
with respect to annual accounting periods of certain foreign 
corporations beginning after December 31, 1962.

* * * * *
    (f) * * *
    (13) through (15) [Reserved].
    (16) The text of proposed Sec.  1.6038-2(f)(16) is the same as the 
text of Sec.  1.6038-2T(f)(16) published elsewhere in this issue of the 
Federal Register.
* * * * *
    (m) The text of proposed Sec.  1.6038-2(m) is the same as the text 
of Sec.  1.6038-2T(m) published elsewhere in this issued of the Federal 
Register.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-12441 Filed 6-14-19; 4:15 pm]
 BILLING CODE 4830-01-P