More Generous than Accurate: The GILTI Foreign Tax Credit and Coordination of the Foreign Tax Credit Rules with the New International Tax Provisions of the TCJA

The recent Tax Cuts and Jobs Act (TCJA) enacted massive changes to the U.S. tax system’s international tax rules, including changes to the U.S. foreign tax credit. (Foreign tax credits reduce U.S. tax by the amount of the U.S. taxpayer’s foreign taxes, subject to many requirements.) Among other changes, the TCJA added a new type of foreign tax credit for U.S. shareholders who suffer GILTI (global intangible low-taxed income) inclusions. In addition, the TCJA reduced the foreign tax credits available in some circumstances, to coordinate with new international tax provisions. Such new provisions include a one-time deemed repatriation of certain foreign subsidiaries’ earnings, a 100 percent deduction for dividends received from certain foreign subsidiaries, and the BEAT (base erosion and anti-abuse tax). This Article discusses the impact of the GILTI-related foreign tax credit rules and the coordination of other new international provisions with the existing foreign tax credit system. The Article argues that the GILTI-related foreign tax credit is more generous than accuracy (exact reduction of double taxation) would demand. The TCJA’s coordination of other new rules with the foreign tax credit system also tends to be more taxpayer favorable than mere fairness would require, with some notable exceptions. The interaction of the foreign tax credit with the new international tax provisions also creates some surprising effects and incentives.