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Guidance on the Interaction of FTCs & DCLs With Pillar Two GloBE Rules

Treasury will issue proposed regulations addressing the interaction of FTCs and DCLs with other taxes implemented by the GloBE rules under Pillar Two.
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On December 11, 2023, the IRS released Notice 2023-80 (the Notice) announcing that the U.S. Department of the Treasury (Treasury) will issue proposed regulations addressing the interaction of foreign tax credits (FTCs) and dual consolidated losses (DCLs) with other taxes implemented by the Global Anti-Base Erosion (GloBE) rules implemented by the worldwide initiative of Pillar Two. In addition to addressing concerns with the taxes imposed under Pillar Two, Treasury also extended the temporary relief afforded under Notice 2023-55 with respect to the 2022 FTC final regulations. The Pillar Two rules developed by the Organisation for Economic Co-operation and Development propose a system of global taxation based on financial accounts applied using a minimum rate of 15% (which is set to rise to 17% by 2026) on a country-by-country basis. These rules are designed to target multinational enterprise groups (MNE groups) with average annual global revenues of at least EUR 750 million. By design, the Pillar Two rules are expected to raise worldwide effective tax rates (ETRs) by utilizing charging provisions like:

  1. Qualified Domestic Minimum Top-Up Tax (QDMTT), which is a minimum tax imposed by the domestic law of a jurisdiction that computes its own top-up tax following the Pillar Two rules;
  2. Income Inclusion Rule (IIR), a minimum that imposes top-up tax at the highest level of an MNE group concerning low-taxed income at its constituent entities; and
  3. Undertaxed Profits Rule (UTPR), a rule that allows a jurisdiction to deny deductions in its own jurisdiction to top up any low-taxed jurisdictions of an MNE group not brought into charge under the IIR or QDMTT.

As of the current date, multiple jurisdictions have already enacted Pillar Two legislation or have agreed to enact Pillar Two legislation within the next following months.

Interaction With the U.S. Foreign Tax Credit Regime & High-Tax Exclusion for GILTI & Subpart F

Forvis Mazars can assist you with your Pillar Two needs, please reach out to a professional at Forvis Mazars.

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