By Patrick Riley Murray. Full Text.
The Tax Cuts & Jobs Act drastically altered the U.S. international tax landscape. Among its most significant changes is the implementation of the Global Intangible Low-Taxed Income (GILTI) regime. GILTI attempts to increase the U.S. tax base by preventing both the offshoring of intangible assets and the avoidance of U.S. tax. Though aimed at large multinational corporations, GILTI also applies to small businesses.
Through inordinately complex methods, GILTI mandates controlled foreign corporations to artificially reverse engineer their intangible income, and it requires the U.S. shareholders of those corporations to include that artificial amount in gross income. GILTI also imposes new, onerous reporting requirements that are applicable from the first dollar of income. When the Treasury proposed its GILTI regulations, small taxpayers asked for relief. But the Treasury balked, using loopholes within the Regulatory Flexibility Act to avoid legally mandated analysis on the effects of its regulations on small businesses.
This Note discusses the incongruity of the GILTI regime’s purposes with its effects on U.S. citizens who reside abroad and own a business. It argues that either Congress or the Treasury should implement a de minimis exception to render GILTI a better reflection of its purpose. And it makes two main contributions to the literature on statutory interpretation of the tax code, the literature on emigrant taxation, and the literature on the Tax Cuts & Jobs Act. First, it contextualizes the GILTI regime from conception to present day and grounds calls for a de minimis exception within the statutory interpretation landscape. Second, this Note proposes an analytical framework for the application of de minimis exceptions in the regulatory and legislative context.