Foreign Derived Intangible Income

Foreign Derived Intangible Income

COMING TAX YEAR 2018

For the past 50 years, the Internal Revenue Code has included various incentives for USA companies to export goods and services manufactured domestically. The Tax Cuts and Jobs Act of 2017 is no different, as it includes the Foreign Derived Intangible Income (FDII) deduction in Section 250.

This is part of a new deduction that combines FDII with Global Intangible Low – Taxed Income (GILTI).  This significant deduction is the sum of 37.5% of FDII plus 50% of GILTI resulting in a large deduction.  Similar to Section 199, its limitation is based on Taxable Income.


From the beginning, ABGi has been an expert in both DPAD and IC-DISC, and this new program combines the two. As a result, over the past year, we have researched the law, IRS guidance, and other published opinions surrounding Section 250 to ensure that we are prepared to assist our clients.  We have discovered that this calculation is extremely complex, and there are numerous factors that must be considered to maximize the available benefit.

  • To implement this deduction successfully, multiple computations of taxable income must be performed.  At nine separate decision points, a maximization opportunity can be lost.
  • Domestic C-Corporations are allowed a 37.5% deduction based on the eligible income derived from property sold to any foreign entity, and which the taxpayer establishes is for foreign use; or for qualified services provided by the taxpayer to any person, or with respect to property, not located within the USA.
  • This deduction lowers the effective tax rate on income generated by qualified sales or services from 21% to 13.125%.
  • The Act combines the FDII deduction with the new GILTI provision, which results in a significant deduction of 37.5% of FDII plus 50% of GILTI. As with Section 199, this benefit is based upon an entity’s taxable income.
  • Since FDII and GILTI are new additions to the Internal Revenue Code, emerging positions will be challenged. An in-depth legal knowledge of the Treasury Regulations, DPAD, and IC-DISC will be critical to maximize these new benefits.

ABGi has been optimizing the long-standing export incentives for more than three decades. Our specialists have the unique expertise necessary to gather, assess, and organize the data necessary to take full advantage of the valuable incentives available.

 

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