New York Issues Guidance on Repatriation, GILTI, FDII Deduction

New York has explained the impact of international tax provisions in the Tax Cuts and Jobs Act, including

  • mandatory deemed repatriation income (IRC Sec. 965(a) inclusion);
  • foreign-derived intangible income (FDII); and
  • global intangible low-taxed income (GILTI).

Mandatory Deemed Repatriation Income

The TCJA provided for mandatory deemed repatriation of foreign earnings under the TCJA. New York treats IRC Sec. 965 inclusion amounts differently, based on type of entity.

C Corporations

The IRC Sec. 965(a) inclusion amount received from corporations not included in a combined return with the taxpayer is considered gross exempt controlled foreign corporation income.

The IRC Sec. 965(a) inclusion amount, less interest deductions attributable to the income, or less 40% of the IRC Sec. 965(a) inclusion amount if the safe harbor election is made, is considered exempt CFC income and deducted from entire net income.

Because the IRC Sec. 965(a) inclusion amount is considered gross exempt CFC income, the federal deduction under IRC Sec. 965(c) is not allowed.

The IRC Sec. 965(a) inclusion amount is not included in the numerator or denominator of the business apportionment factor. The inclusion amount is also disregarded for the “principally engaged” test used to determine eligibility for preferential rates available to manufacturers.

S Corporations

For the business apportionment factor, the net IRC Sec. 965 amount is treated as dividends from stock. When the 8% fixed percentage method election is in effect and the stock generating the net IRC Sec. 965 amount is a qualified financial instrument, the net IRC Sec. 965 amount is included in the denominator of the business apportionment factor, and 8% of the amount is included in the numerator. Otherwise, the net IRC Sec. 965 amount is not included in the numerator or denominator of the New York S corporation’s business apportionment factor.

Exempt Organizations

Any net IRC Sec. 965 amount required to be included in federal unrelated business taxable income is included in New York unrelated business taxable. There is no New York exemption or deduction for this income for exempt organizations.

Insurance Corporations

The IRC Sec. 965(a) inclusion amount received from foreign corporations not included in a combined report with the taxpayer must be subtracted when computing entire net income. Taxpayers must add back to federal taxable income interest and noninterest deductions attributable to the IRC Sec. 965(a) inclusion amount. Because the IRC Sec. 965(a) inclusion amount is not part of entire net income, the federal deduction under IRC Sec. 965(c) is not allowed.

Fiduciaries

Net IRC Sec. 965 amounts required to be included in federal total income must be included in the total income reported to New York.

Individuals

A full-year resident must include the net IRC Sec. 965 amount in federal adjusted gross income and, consequently, New York taxable income. For a nonresident or part-year resident, the net IRC Sec. 965 amount is included in federal adjusted gross income and treated as income from an intangible.

No Deferred Payment

New York taxpayers cannot defer payment of their state tax associated with mandatory deemed repatriation income.

Foreign-Derived Intangible Income Deduction

For federal purposes, a U.S. domestic corporation taxed as a C corporation can deduct a portion of its income derived from serving foreign markets. New York does not allow the federal FDII deduction.

Global Intangible Low-Taxed Income

New York’s treatment of GILTI also varies according to type of entity.

C Corporations

Net GILTI income is included in entire net income. Net GILTI income is the GILTI recognized under IRC Sec. 951A less the allowable IRC Sec. 250(a)(1)(B)(i) deduction.

IRC Sec. 78 dividends attributable to GILTI are not included in entire net income.

If the stock of a foreign corporation generating GILTI is business capital, net GILTI income must be represented in the business apportionment factor to properly reflect the taxpayer’s business income and capital in the state. The net GILTI income must be included in the denominator but not the numerator of the business apportionment factor.

If the stock of a foreign corporation that generates GILTI is investment capital, only the net GILTI income may be deducted as investment income in computing business income. As with other income from investment capital, the net GILTI amount is not included in the numerator or denominator of the business apportionment factor.

The net GILTI amount is disregarded for the “principally engaged” test used to determine eligibility for preferential rates available to manufacturers.

S Corporations

GILTI income must be included in the denominator but not the numerator of the New York S corporation’s business apportionment factor.

Exempt Organizations

Any GILTI amount required to be included in federal unrelated business taxable income is included in New York unrelated business taxable income. There is no New York exemption or deduction for this income for exempt organizations.

Insurance Corporations

If the stock of a foreign corporation generating GILTI is subsidiary capital, the GILTI under IRC Sec. 951A and any GILTI-related IRC Sec. 78 dividends are considered exempt income from subsidiary capital. The corresponding deductions under IRC Sec. 250 for GILTI and IRC Sec. 78 dividends attributable to GILTI are disallowed.

Otherwise, GILTI under IRC Sec. 951A, as well as any GILTI-related IRC Sec. 78 dividends, remain in entire net income and are subject to tax. The corresponding deductions under IRC Sec. 250 for GILTI and IRC Sec. 78 dividends attributable to GILTI are allowed in computing entire net income.

Fiduciaries

GILTI required to be included in federal total income must be included in the total income reported to New York.

Individuals

A full-year resident must include GILTI in federal adjusted gross income and, consequently, New York taxable income.

For a nonresident or part-year resident, GILTI is included in federal adjusted gross income and treated as income from an intangible.

TSB-M-19(1)C and TSB-M-19(1)I, New York Department of Taxation and Finance, February 8, 2019

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CCHTaxGroup

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