INTERNATIONAL TAX 2020 YEAR IN REVIEW When Robots Rebel

©2019 True Partners Consulting LLC. All rights reserved. True Partners Consulting is a registered trademark in the U.S. and several international jurisdictions. March 27, 2019

INTERNATIONAL TAX 2020 YEAR IN REVIEWWHEN ROBOTS REBEL: MODELING THE GILTI HTE AND INTERNATIONAL WORKPAPER AUTOMATION

True Partners Consulting: Sonali Fournier, Lauren Ansley, Anli Chen, & Raluca Romonti

©2019 True Partners Consulting LLC. All rights reserved. True Partners Consulting is a registered trademark in the U.S. and several international jurisdictions. 3

PANELISTS: SONALI FOURNIER AND LAUREN ANSLEY

Sonali FournierManaging DirectorSonali provides tax compliance and consulting services to large multinational clients in the Florida area. She has broad-based knowledge in the areas of FAS 109 tax provision analysis, including deferred and tax payable studies, purchase accounting, and APB 23 analysis. She also has experience in outbound structuring of business operations and international compliance. Additionally, she has been involved with structuring international taxation strategies for multinational companies, including international reorganizations and acquisitions, evaluation of international tax treaties, repatriation planning, foreign tax credit planning, foreign currency and financing transactions, global and local country tax planning, and analyzing corporate structures to minimize Subpart F income.

Lauren AnsleyDirectorDuring her career, Lauren has worked on a variety of compliance and consulting engagements with a focus on both U.S. federal and international taxation. She has experience with the analysis and calculation of Subpart F income inclusions, foreign tax credits, earnings and profits, IRC §78 tax pools, CFC interest netting, and repatriation scenarios. Lauren has participated in a number of U.S. income tax reporting engagements, including the preparation of domestic consolidated corporation, S-Corporation, and partnership federal income tax returns. In addition, she has significant experience with the preparation and review of international tax informational reporting on Forms 5471, 8858, 8865, and 1118. Lauren has worked to prepare and review the domestic and international income tax provision calculations for large companies; this experience includes the analysis and calculation of the deferred income tax assets and liabilities for foreign subsidiaries of U.S. multinational companies.


PANELISTS: ANLI CHEN AND RALUCA ROMONTI

Anli ChenDirectorAs the firm’s Technology Transformation Lead, Anli focuses on implementing emerging technology solutions to help clients solve tax technical challenges. Anli has 15 years of experience working with clients on large scale enterprise-level technology initiatives across industries, providing solutions for operational excellence, business optimization, and process automation through Business Process Management (BPM) platforms, Robotic Process Automation (RPA) solutions, Artificial Intelligence (AI) applications, and Advanced Analytics tools. She specializes in tax process improvement, emerging technology implementation, and forward-looking automations for tax functions.

Raluca has experience with a diverse client base, specializing in compliance and consulting engagements with a focus on both U.S. federal and international taxation. Her experience includes consulting engagements on ASC 740 –Accounting for Income Taxes, earnings and profits studies, and tax deferred and payable studies. In addition, Raluca has significant experience related to federal and international income tax compliance projects for corporations.

Raluca RomontiSenior Manager

©2019 True Partners Consulting LLC. All rights reserved. True Partners Consulting is a registered trademark in the U.S. and several international jurisdictions.

GILTI HIGH TAX EXCLUSIONWHAT YOU NEED TO KNOWTrue Partners Consulting: Sonali Fournier and Lauren Ansley


AGENDA

• GILTI High Tax Exclusion Overview

• Examples:• Tested Unit Example• Disregarded Payment Example• Modeling Scenario Example

• NOL Carryback Implications

• GILTI HTE: Decision Makers


HIGH-TAX EXCLUSION: GILTI

FINAL REGULATIONS RELEASED JULY 23, 2020

Major changes in final regulations from proposed regulations:-Tested unit (“TU”) by TU determination instead of qualified business unit (“QBU”) by QBU to determine effective foreign tax rate;-Grouping of tested units per CFC that are tax residents of the same foreign country;-Annual election that may be made or revoked each CFC year instead of the 60-month limitation on re-electing the GILTI HTE; and-No relief for foreign NOL carryforwards

Applicable to tax years of foreign corporations beginning on or after July 23, 2020 with an option to apply retroactively to tax years beginning after December 31, 2017.



FINAL REGULATIONS RELEASEDKEY TAKEAWAYS

Tentative tested income items qualify for the GILTI HTE if the effective foreign tax rate on such items is greater than 90% of the federal tax rate:

Currently 18.9% threshold (21% x 90%);

Effective foreign tax rate = USD foreign income taxes paid or accrued with respect to tentative tested income / (USD tentative tested income + taxes included in the numerator); and

Foreign income taxes paid or accrued = Current year taxes only

Disregarded payments are regarded for purposes of calculating gross tested income and/or tentative tested income for each TU.

Consistency requirements provide that, if so elected, the GILTI HTE applies to all CFCs that are members of a controlling domestic shareholder group (“CFC Group”).

The controlling U.S. Shareholder of a CFC Group that makes or revokes a GILTI HTE election has an obligation to inform any non-controlling U.S. shareholders of those CFCs of such election or revocation.



TESTED UNIT CALCULATION

Each tentative gross-tested income item with respect to a CFC is analyzed separately.

A tentative gross tested income item is the aggregate of all items of gross income attributable to a TU.

The tentative net tested income items of each TU are analyzed for the effective tax rate imposed upon it in a foreign jurisdiction(s).

IMPACT OF THE ELECTION

One CFC may have both tentative gross-tested income items that do qualify for the HTE anditems that do not qualify.

If income of a TU is excluded from tested income due to the HTE, the TU’s taxes and QBAI are similarly excluded from the GILTI calculation.

Once made, election applies to all CFCs within the CFC Group (>50% common control).



MAKING THE ELECTION

Election is made by the controlling domestic shareholders by attaching a statement to an original or amended income tax return for the inclusion year.

Final regulations allow for the election to be made on an annual basis.

Notice of election or revocation must be made by controlling domestic shareholders to non-controlling domestic shareholders.

AMENDING TO APPLY HTE

Retroactive application of the final regulations must be reflected on amended returns filed within 24 months of the original due date of the U.S. shareholder’s tax return.

If an amended return is filed by the controlling domestic shareholder, all other U.S. shareholders of such CFC(s) must file an amended return. All amended returns must be filed in the same 6-month window.


TESTED UNIT EXAMPLE

CFC 1(Netherlands)

CFC 2(Germany)

CFC 3(Brazil)

CFC 4(Germany)

FDE-A(Netherlands)

FDE-C(Ireland)

FDE-D(Ireland)

BRANCH-B(Romania) *

FDE-E(Uruguay)

FDE-F(Mexico)

TESTED UNITS INCLUDE:• Controlled foreign corporation;• Interest in a pass-through (Foreign

P/S or DRE); and• Branches

COMBINATION RULE:• Single tested unit if they are tax

residents of the same foreign country;

• Combination by tax residency is mandatory, not elective.

*Branch activities give rise to taxable presence in Romania


DISREGARDED PAYMENT EXAMPLE

$250 Interest Payment

CFC(Cayman Islands)

FDE(Netherlands)

$250 of Pre-Tax Income [$250 Interest Income] 0% Income Tax Rate

$1,000 of Pre-tax Income [$1,250 Income - $250 Interest Expense]$250 of Foreign Tax Expense [$1,000 x 25%]25% Income Tax Rate

DISREGARDED PAYMENTS

Transactions between disregarded entities and their tax owners are considered for the tested unit by tested unit calculation of effective tax rate.

Only the attributes (tested income, QBAI, taxes paid) of tested units that meet the high tax threshold are excluded from the U.S. Shareholder’s GILTI calculation.

In the following example, one CFC (including underlying foreign disregarded entities) has $1,250 of taxable income and pays a total of $250 in income taxes. The disregarded entity pays $250 of interest to its tax owner CFC.


DISREGARDED PAYMENT EXAMPLE

$250 Interest Payment

CFC(Cayman Islands)

FDE(Netherlands)

• While the CFC overall pays an effective tax rate greater than 18.9%, only the activity of tested unit “FDE” qualifies for the GILTI HTE.

Tested Unit Calculation

• In the scenario where CFC is a taxpaying entity, additional consideration may be necessary when allocating taxes to items of income attributable to a foreign subsidiary.

Allocating Taxes


MODELING SCENARIO EXAMPLE

MODELING SCENARIO FACTS: • USSH owns 100% of CFC1 for the entire tax year.• CFC1 is made up of 3 tested units (“TUs”). • USSH is LIMITED on its GILTI basket FTCs to $1,000,000.• USSH is a BEAT Applicable Taxpayer.


MODELING SCENARIO EXAMPLE – NOL INTERACTION


MODELING SCENARIO EXAMPLE – BEAT INTERACTION

EXAMPLE CONTINUED:


RETROACTIVE APPLICATION OF GILTI HTE

NOL CARRYBACK IMPLICATIONS

As a result of the CARES Act, NOLs generated in tax years beginning after 12/31/2017 and before 1/1/2021 may be carried back up to 5 years.

Because the application of the GILTI HTE may exclude a portion (or the entirety) of tested income from the taxable income of a U.S. Shareholder, this option could have an impact on the amount of net operating loss created or utilized in the 2018 or 2019 tax year.

Losses generated in a year with a 21% maximum corporate tax rate may be carried back to a year with a 35% maximum corporate tax rate, providing additional tax benefit.

Amended returns filed to retroactively apply these rules must be filed within 24 months of the original return due date.

Ex. For calendar year 2018 corporate returns, the amended returns must be filed by 4/15/2021


GILTI HTE: DECISION MAKERS

YOU MAY WANT TO ELECT IF:

• A large portion of tested income resides in high-tax jurisdictions with a low proportion of QBAI;

• The FTC is severely limited for GILTI credit utilization;

• The company is in a BEAT payable position;• The company is currently in an NOL position or

wants to maximize carryback or carryforward of NOLs; or

• The Section 250 deduction is limited due to taxable income.

YOU MAY NOT WANT TO ELECT IF:

• A large portion of QBAI and tested foreign income taxes resides in high-tax jurisdictions;

• The FTC is not severely limited for GILTI credit utilization; or

• The compliance burden of doing the full calculation (information gathering, allocating taxes, notifying other U.S. shareholders, potential amended returns) is too high.

A number of factors impact the benefit or cost of electing the GILTI HTE in each year, both retroactively and prospectively. These items should be monitored each year, as the GILTI HTE is now an annual election. Below is a summary of items to consider when making the decision.

©2019 True Partners Consulting LLC. All rights reserved. True Partners Consulting is a registered trademark in the U.S. and several international jurisdictions.

COMBINING TAX & TECHNOLOGYMODELING AND INTERNATIONAL WORKPAPER AUTOMATIONTrue Partners Consulting: Anli Chen and Raluca Romonti


ALTERYX IN TAX IS…

Leading tax practitioners to tackle complex tax challenges, because:

“We aim to make our platform as ubiquitous in the workplace as spreadsheets are today.”

- Form 10-K Alteryx

INCREASED TRANSPARENCY

and stricter regulatory reporting requirements

TAX DATA IS EVERYWHERE

ERP, consolidation systems, billing systems, commerce

platforms, etc.

MANUAL INTERVENTIONS

such as reviews, reconciliations, and

manipulations to make data useful for tax analytics

SUBSTANTIAL WASTE

because of inefficient collection and review of

non-integrated data


ACHIEVE TAX TRANSPARENCY WITHIN ALTERYX (NOT EXCEL)

Documentation w. Context

o Visualize business contexts o Searchable workflows o Generate audit trails, usage

reports, and exception reports for audit

Review with Centralized Formulas & Logic

o Output workflow formulaso Read through workflow step by

step and trace data & calcso Create exceptions, warnings or

error notification throughout process

Info Request Workpaper & Review

Returns & Reports

Review & Validation

Real-Time Validation w.Pre-defined Logic

o Ensure source data is conformed to tax requirements

o Create exception reports with audit trails and identified outliers

o Automate follow-up emails

Iterative Updates w.Key Parameters

o Update with new laws, guidance from tax authorities or process change

o Replicate logic across multiple workflows, clients, time periods


DEMO – GILTI MODEL IN ALTERYX


ALTERYX EXAMPLE – INTERNATIONAL TRIAL BALANCE ROLL-UP

• This Alteryx Analytics App provides automated foreign business unit GL conversion and TB ready to be imported to tax software.

• The input validation, follow-up, and conversion used to take the tax team one full week to complete. Now, the automated process finishes in 4 hours.

User Inputs:Raw GL files from BUs; Org structure and local currencies

Process Inputs:Calculate CTA accounts; Convert currency;Roll-up to Legal Entities

Output Validation:Confirm data completion;In-Balance validation; Quality check outputs

User Interface:

Automated workflow:

Documents

INTERNATIONAL TAX 2020 YEAR IN REVIEW When Robots Rebel