branch, passive and general income baskets. The FTC is the lesser of the
into the GILTI and foreign branch income baskets are mutually exclusive.
First, income and assets are allocated to the general and passive income baskets. Then, the general basket amounts are further allocated between GILTI and non-GILTI (with the non-GILTI treated as general) using the "inclusion percentage" of Section 960(d), which limits the amount of foreign taxes deemed attributable to GILTI based on a percentage equal to GILTI divided by aggregate tested income.
Foreign taxes arising from foreign branches should also be a new area of focus, given the new foreign branch income basket. The proposed FTC regulations generally define foreign branch by reference to the Section 989 regulations, including providing that a foreign branch must carry on a trade or business outside the United States and maintain a separate set of books and records.
Beginning in 2007, the number of foreign-source income baskets
is reduced from nine to two: passive and general limitation.
In the international area, one provision reduces the number of income baskets
for foreign tax credits from nine to two--one passive income basket
and one general one.
For tax years beginning after 2006, AJCA Section 404 consolidates the nine FTC baskets into passive income and general income baskets
Any remaining related-person interest (after Step 2) is apportioned to other income baskets
based on either gross income or asset value, as provided in Temp.
Under the lookthrough rules, Subpart F income and payments (or deemed payments) of interest, rent, royalties and dividends are included in separate baskets by reference to the CFC's income baskets
. The lookthrough rules are summarized below.
Although "separate income limits" and "income baskets
" are beyond the scope of this item, their mind-numbing complexity often baffle the brightest of international tax experts.
1.865-1T(b) states that losses recognized on depreciable property are allocated between income baskets
based on the allocation of depreciation deductions previously claimed on the property.
As has been the case for several years, corporations allocated the majority of their foreign-source taxable incomes (75.9 percent) and foreign taxes (80.5 percent) to the general limitation income basket
. The financial services income basket
was responsible for the second-largest share of these amounts, with 18.3 percent of the foreign-source taxable income and 14.7 percent of foreign taxes.