Pennsylvania Treatment of GILTI and FDII: Corporation Tax Bulletin 2019-02
By Douglas Nakajima, International Tax Co-Leader
The Tax Cuts and Jobs Act of 2017 added Sections 951A and 250 to the Internal Revenue Code (the “Code”). For federal income tax purposes, Section 951A subjects certain U.S. taxpayers to tax on their global intangible low-taxed income (“GILTI”) for tax years beginning on or after January 1, 2018. Section 250 of the Code authorizes a federal deduction for taxpayers reporting GILTI and taxpayers with foreign-derived intangible income (“FDII”).
On January 24, Pennsylvania’s Department of Revenue released Corporate Tax Bulletin 2019-02, addressing the Pennsylvania tax treatment of GILTI and FDII. In the Bulletin, the Department concludes that GILTI is included in the corporate income tax base and is treated as a dividend in a manner similar to Subpart F income. Therefore, taxpayers will be able to deduct from Pennsylvania taxable income 100% of included GILTI from foreign subsidiaries under Pennsylvania’s dividends received deduction. When actual distributions are received, Pennsylvania will follow the federal treatment of such distributions as previously taxed income (not subject to Pennsylvania corporate income tax).
However, the Bulletin also concludes that taxpayers do not receive the GILTI or FDII deductions for Pennsylvania income tax purposes. Pennsylvania has determined that these deductions are “special deductions” for federal Income tax purposes and will not allow them for Pennsylvania corporate income tax.
For Pennsylvania personal income tax (“PIT”) purposes, dividends are defined as a distribution of cash or property made out of current or accumulated earnings and profits. Although the federal GILTI provisions require the inclusion in taxable income as a deemed dividend, with no actual cash distribution required, for Pennsylvania PIT purposes it is not a dividend includible in the taxable income of the shareholder. Upon actual distribution, the shareholder will be required to report the income for PIT purposes regardless of whether a Form 1099-DIV is received.
If you have questions concerning Pennsylvania’s treatment of GILTI and FDII, please reach out to your International or State & Local Tax group members.