Overview of the Taxation of Global Intangible 

Low-Taxed Income and Foreign-Derived 

Intangible Income: Sections 250 and 951A

Prepared by the Staff of the Joint Committee on Taxation

May 2019
2 Overview
Taxation of Global Intangible

Low-Taxed Income

3

 Public Law 115-97 (the “Act”) added new section 951A to the Internal 

Revenue Code (the “Code”).

 Section 951A requires that U.S. shareholders of any controlled foreign 

corporation (“CFC”) include in gross income in the current taxable year their 

global intangible low-taxed income (“GILTI”).

 The amount of a U.S. shareholder’s GILTI generally reflects the sum, across all of 

its CFCs, of certain CFC income, offset by the sum of certain CFC losses, in 

excess of a 10-percent return on tangible investment (with the return reduced 

by certain interest expense).

 The Act also added new section 250 to the Code, which generally allows 

U.S. corporate shareholders a 50-percent deduction on their GILTI, thereby 

subjecting GILTI to a 10.5-percent U.S. tax rate, with partial foreign tax 

credits available to offset some or all of the U.S. tax liability.

 For taxable years beginning after December 31, 2025, the deduction is 

reduced to 37.5 percent, resulting in a 13.125-percent U.S. tax rate.
Taxation of Foreign-Derived

Intangible Income

4

 Section 250 also provides domestic corporations a 37.5-

percent deduction on their foreign-derived intangible 

income (“FDII”), resulting in a 13.125-percent effective tax 

rate on such income.

 A corporation’s FDII is generally the amount of certain 

income in excess of a 10-percent return on tangible 

investment, multiplied by the percentage of that income 

derived from serving foreign markets.

 The deduction for FDII is reduced to 21.875 percent for 

taxable years beginning after December 31, 2025, 

resulting in a 16.406-percent effective tax rate on FDII.
5 Background
Background Terminology

6

 U.S. shareholder

 With respect to a foreign corporation, a U.S. shareholder means any U.S. 

person who owns at least 10 percent of the stock (measured by vote or value) 

of the foreign corporation.

 Controlled foreign corporation (“CFC”)

 A CFC is any foreign corporation that is more than 50-percent-owned (by vote 

or value) by U.S. shareholders.

 A foreign corporation that is owned equally by a U.S. shareholder and foreign 

person (e.g., certain joint ventures) is not a CFC.

 Foreign tax credit (“FTC”)

 An FTC is a credit against U.S. taxes for foreign income taxes paid, generally 

limited to the same income, to relieve double taxation of that income. 

 A U.S. shareholder may also be allowed a “deemed-paid” credit for foreign 

taxes paid with respect to the related income when it is included in income. 

 A section 78 gross-up amount equal to the deemed-paid credit is added to the 

income of the taxpayer claiming the “deemed-paid” FTC.
Background on Prior Law

7

 In general under prior law, the United States taxed firms on a worldwide 

basis, with deferral. 

 U.S. tax on active foreign income of foreign subsidiaries was generally 

deferred until the income was distributed to the U.S. shareholder as a 

dividend (i.e., repatriated).

 A large portion of active foreign income earned by U.S. companies is earned 

through CFCs and, under prior law, was not subject to current U.S. tax.

 Passive/mobile foreign income was generally subject to current U.S. 

taxation under subpart F.

 FTCs, including deemed-paid FTCs, were available, subject to income 

limitations based on type of income and source, to avoid use of credits to 

reduce U.S. tax on U.S. income or on foreign income not otherwise subject 

to tax. 

 FTCs were assigned to one of two categories – passive or general. 

 Whether a taxpayer owed additional or residual U.S. tax depended on not 

only the source and type of income but also on the relative tax rates of the 

United States and the foreign jurisdiction. 
From Prior Law to Present Law

8

 The Act retained many of the definitions and concepts of prior law with 

respect to the taxation of foreign business income but introduced rules 

that effectively ended deferral of income earned through foreign 

corporations.

 Certain dividends from CFCs to U.S. shareholders can generally be 

distributed tax-free under the Act’s 100-percent dividends-received 

deduction (“DRD”). Sec. 245A.

 The Act expanded the scope of CFC income subject to current U.S. tax (i.e., 

GILTI).

 Under present law, foreign business income is now (1) taxed currently at 

the full U.S. tax rate with full FTCs (e.g., subpart F); (2) taxed currently 

at a reduced tax rate with partial FTCs (e.g., GILTI); or (3) not taxed 

(e.g., eligible for the section 245A DRD).

 The Act added two FTC baskets: 

 a GILTI basket and 

 a foreign branch income basket.
Tax Attributes of U.S. Multinational Groups 

and Their CFCs (Tax Year 2014)

9

Source: IRS Statistics of Income. Sample includes all firms filing Forms 1120 and 5471.

* Calculated as aggregate foreign taxes paid or accrued over E&P.

All Firms

Less Than 

10% 10%-21% Greater Than 21%

Positive E&P of CFCs $970 $583 $252 $135

Negative E&P of CFCs -$136 -$77 -$26 -$32

Subpart F $78 $43 $19 $16

Total Foreign Tax $121 $29 $41 $50

Foreign Assets $21,672 $10,411 $7,048 $4,213

Number of CFCs 107,104 43,156 29,332 34,616

Number of Groups 14,447 8,507 1,285 4,655

Group Average Foreign Tax Rate* of:

(Dollar Amounts in Billions)
E&P of U.S. Multinational Groups by 

Foreign Tax Rates (Tax Year 2014)

10

Source: IRS Statistics of Income. Sample includes all firms filing Forms 1120 and 5471.

*Calculations exclude individual CFCs with observed tax rates greater than 40%.
Taxation of Global Intangible

Low-Taxed Income

11
GILTI: Formula

GILTI = Net CFC Tested Income – Net Deemed Tangible Income Return

12

= Sum of CFC Tested Income – Sum of CFC Tested Loss – [(10% × QBAI) – Certain Interest Expense]

CFC Tested Income = Gross Tested Income – Allocable Deductions

CFC Tested Loss = Allocable Deductions – Gross Tested Income

QBAI = Qualified Business Asset Investment

where:
Subpart F vs. GILTI

 GILTI is a U.S.-shareholder level amount, while subpart 

F income is a CFC-level amount.

 The mechanics for current U.S. taxation of GILTI rely on 

the rules of subpart F, even though GILTI is not a 

category of subpart F income.

 A GILTI inclusion is generally treated as a subpart F 

inclusion.

 Unlike subpart F income, no earnings and profits 

(“E&P”) limitation exists for purposes of determining a 

U.S. shareholder’s GILTI inclusion.

13
Gross Tested Income

 A CFC’s gross tested income is its gross income determined 

without regard to:

 any effectively connected income; 

 any gross income taken into account in determining subpart F 

income;

 any gross income excluded from foreign base company income 

or insurance income because it is taxed at a foreign effective 

tax rate greater than 90 percent of the U.S. corporate tax rate;

 any dividend received from a related person; and

 any foreign oil and gas extraction income.

14
Tested Income and Tested Loss

 A CFC’s tested income is the positive amount (if any) of its gross tested 

income less deductions (including taxes) properly allocable to such gross 

income.

 A CFC with tested income is referred to as a tested income CFC under 

proposed Treasury Regulations.

 A CFC’s tested loss is the positive amount (if any) of deductions (including 

taxes) properly allocable to the CFC’s gross tested income less the amount 

of such gross income.

 A CFC with tested loss is sometimes referred to as a tested loss CFC under 

proposed Treasury regulations.

 While U.S. shareholders may offset tested income with tested losses in 

computing GILTI, U.S. shareholders may not use certain other tax attributes 

of tested loss CFCs such as FTCs and QBAI.

15
Tested Income and Tested Loss: Example

 USCo, a domestic corporation, owns 

100 percent of the outstanding stock 

of two CFCs, CFC1 and CFC2. 

 CFC1 and CFC2 are the only CFCs 

with respect to which USCo is a U.S. 

shareholder.

 The table to the left includes more 

information about CFC1 and CFC2. 

 Assume that CFC1 and CFC2 each face a 

uniform foreign tax rate (i.e., 20 percent) 

across all their sources of income.

16

USCo

CFC1 CFC2

CFC1 CFC2

Gross Income $1,000 $200

Gross Tested Income $300 $200

Subpart F Income $100 $0

Oil Extraction Income $600 $0

Expenses* $400 $225

Expenses Allocable to 

Gross Tested Income

$200 $225

Net Income $600 ($25)

Foreign Tax (at 20%) $120 $0

*For illustrative purposes, assume $200 of CFC1’s expenses 

are allocable to income other than gross tested income.
Tested Income and Tested Loss: Example 

(cont’d)

17

CFC1 Tested Income

$300 Gross Tested Income

– $200 Allocable Expenses

– $20 Allocable Foreign Taxes

= $80 Tested Income

CFC2 Tested Loss

$225 Allocable Expenses

– $200 Gross Tested Income

= $25 Tested Loss

Remember: 

 CFC1 and CFC2 each face a uniform foreign tax 

rate of 20 percent across all sources of income. 

 CFC1 paid $120 of foreign tax, but only $20 

(20 percent × [$300 – $200]) would be properly 

attributable to tested income.

CFC1 CFC2

Gross Income $1,000 $200

Gross Tested Income $300 $200

Subpart F Income $100 $0

Oil Extraction Income $600 $0

Expenses $400 $225

Expenses Allocable to 

Gross Tested Income

$200 $225

Net Income $600 ($25)

Foreign Tax (at 20%) $120 $0
Net CFC Tested Income: Definition

 Net CFC tested income means, with respect to any 

U.S. shareholder for any taxable year, the positive 

amount (if any) of 

 the aggregate of the shareholder’s pro rata share of 

the tested income of each of its CFCs less

 the aggregate of its pro rata share of the tested loss 

of each of its CFCs.

18

Net CFC Tested Income = Sum of CFC Tested Income – Sum of CFC Tested Loss
Net CFC Tested Income: Example

USCo’s Net CFC Tested Income

 USCo has net CFC tested income of $55, which is USCo’s pro rata share (100 

percent) of CFC1’s tested income of $80 less CFC2’s tested loss of $25. 

19

USCo

CFC1 CFC2

CFC1 Tested Income

= $80 Tested Income

CFC2 Tested Loss

= $25 Tested Loss

CFC1 Tested Income

$300 Gross Tested Income

– $200 Allocable Expenses

– $20 Allocable Foreign Taxes

= $80 Tested Income

CFC2 Tested Loss

$225 Allocable Expenses

– $200 Gross Tested Income

= $25 Tested Loss
Qualified Business Asset Investment

 A CFC’s QBAI is the average of the aggregate of its quarterly adjusted 

bases in “specified tangible property” used in its trade or business and of 

a type with respect to which a deduction is generally allowable under 

section 167 (depreciable). 

 Proposed Treasury regulations define tangible property by reference to 

whether the property can be depreciated under section 168 because, unlike 

section 167, section 168 applies only to tangible property, and there is a 

substantial amount of guidance delineating property subject to section 168.

 A taxpayer’s adjusted basis in depreciable property generally reflects 

the initial basis in the property (often the purchase price) less cumulative 

depreciation allowances taken over time.

 For purposes of computing QBAI, depreciation deductions are calculated using 

the alternative depreciation system (i.e., the straight-line method).

20
Qualified Business Asset Investment 

(cont’d)

 Specified tangible property means any property 

used in the production of tested income.

 Tested loss CFCs may have a business asset 

investment (“BAI”) but do not have tested income 

and, therefore, have no specified tangible 

property and no QBAI.

21
Qualified Business Asset Investment: 

Example

USCo’s Aggregate Pro Rata Share of QBAI

 USCo’s pro rata share of QBAI is $500:

100 percent × $500

+ 100 percent × $0

= $500

22

CFC1 CFC2

CFC Tested Income / Loss $80 ($25)

BAI $500 $600

QBAI $500 $0

 CFC1 has tested income of $80 

and QBAI of $500.

 CFC2 has a tested loss of $25 

and, therefore, does not have 

QBAI for such taxable year. 
Net Deemed Tangible Income Return

 A U.S. shareholder’s net deemed tangible income 

return is the positive amount (if any) of

 10 percent of the aggregate of its pro rata share of 

the QBAI of each of its CFCs less

 certain interest expense.

23

Net Deemed Tangible Income Return = [(10% × QBAI) – Certain Interest Expense]
Net Deemed Tangible Income Return: 

Example

24

Net CFC Tested Income of USCo

$80 Aggregate Tested Income

– $25 Aggregate Tested Loss

= $55 Net CFC Tested Income

Net Deemed Tangible Income Return of USCo

$500 Aggregate QBAI

× 10% Return on QBAI

– $10 Third-Party Interest Expense*

= $40 Net Deemed Tangible Income Return

CFC1 CFC2

CFC Tested Income / Loss $80 ($25)

BAI $500 $600

QBAI $500 $0

Net Related-Party Interest ($100) $100

Net Third-Party Interest* ($10) $0

*Third-party interest expense of CFC1 is the amount of 

CFC1’s interest expense taken into account in determining 

USCo’s net CFC tested income for the taxable year to the 

extent the interest income attributable to such expense is 

not taken into account in determining USCo’s net CFC 

tested income.
GILTI Inclusion

25

GILTI of USCo

$55 Net CFC Tested Income

– $40 Net Deemed Tangible Income Return

= $15 GILTI

USCo

Net CFC Tested Income $55

Net Deemed Tangible 

Income Return

$40
GILTI and Section 250 Deduction

 Section 250(a)(1) provides that a domestic corporation is entitled to a deduction 

equal to the following sum:

 37.5 percent of its FDII, and

 50 percent of its GILTI inclusion and FTCs treated as deemed dividends attributable to 

GILTI under section 78 (“section 78 gross-up amount”).

 Section 250(a)(2) provides that, if the sum of the corporation’s FDII, GILTI, and 

section 78 gross-up amount for the year exceeds its taxable income for the year 

(not taking the section 250 deduction into account), its FDII, GILTI, and section 78 

gross-up amount are proportionately reduced by that excess amount in 

computing the deduction for the year. 

 Proposed Treasury regulations provide that individuals who make a section 962 

election to be taxed as a corporation on subpart F and GILTI inclusions can claim 

the 50-percent deduction for their GILTI and section 78 gross-up amount. 

 Proposed Treasury regulations also provide that a corporate partner can claim 

the section 250 deduction and adopt an aggregate approach for the partner’s 

FDII calculation. 

26
GILTI and Section 250 Deduction: Example

27

 For illustrative purposes, before taking into account FTCs and the section 78 gross-up 

amount, consider USCo’s potential U.S. tax liability relating to GILTI. 

GILTI of USCo

$55 Net CFC Tested Income

– $40 Net Deemed Tangible Income Return

= $15 GILTI

 Applying section 250 to this amount would produce the following result:

USCo’s Potential U.S. Tax Liability Associated with GILTI – Simplified

$15 GILTI

– $7.50 Section 250 Deduction (50% × $15)

= $7.50 Income Subject to Tax 

x 21% U.S. Rate of Tax

= $1.58 Potential U.S. Tax Liability Associated with GILTI
FTCs and GILTI: Formula

Deemed-Paid Credit =

Aggregate Tested Foreign Income Taxes 

× Inclusion Percentage

× 80 Percent

where:

Inclusion Percentage = GILTI/Aggregate Tested Income

28
FTCs and GILTI

 For any GILTI inclusion, U.S. shareholders are 

allowed a “deemed-paid” FTC equal to 80 percent 

of the aggregate tested foreign income taxes paid 

or accrued by their tested income CFCs, multiplied 

by their inclusion percentage.

 Tested foreign income taxes are taxes paid or accrued 

with respect to tested income (but not tested loss).

29
FTCs and GILTI (cont’d)

 As a result, there are two limitations when calculating 

the deemed-paid FTC with respect to GILTI.

 Aggregate tested foreign income taxes are multiplied by 80 

percent (partial credits) rather than 100 percent (full credits).

 This amount is multiplied by the inclusion percentage to ensure, as a 

general matter, that U.S. corporations do not get credit for tested 

foreign income taxes paid with respect to their net deemed 

tangible income return (which is “exempt” from tax).

 FTCs in the GILTI basket cannot be carried forward or 

carried back.

30
Treatment of GILTI under Proposed

Treasury Regulations

 GILTI FTC basket contains items included under section 

951A and related section 78 gross-up amount.

 GILTI FTC basket is generally treated like other baskets.

 U.S. shareholder interest expense must be allocated.

 In order to allocate U.S. shareholder interest expense to the 

GILTI FTC basket, the proposed Treasury regulations treat a 

portion of the CFC stock as an “exempt asset” under section 

864(e)(3) by treating income offset by the section 250 

deduction as “exempt income.”

 Proposed Treasury regulations do not address U.S. 

shareholder R&E, stewardship, and/or G&A expense 

allocation to the GILTI FTC basket. 

31
FTCs and GILTI: Example

32

USCo CFC1 CFC2

Net CFC Tested Income $55

Tested Income / Loss $80 ($25)

Aggregate QBAI $500

CFC BAI $500 $600

CFC QBAI $500 $0

Net Third-Party Interest ($10)

Net Third-Party Interest ($10) $0

Aggregate Tested Foreign 

Income Taxes of CFCs

$20

Foreign Taxes Paid $120 $0

Tested Foreign Income Taxes $20 $0

GILTI of USCo

$55 Net CFC Tested Income

– $40 Net Deemed Tangible Income Return

= $15 GILTI

USCo’s Inclusion Percentage

$15 GILTI

÷ $80 Aggregate Tested Income

= 18.75% Inclusion Percentage

USCo’s Deemed-Paid Credit

$20 Aggregate Tested Foreign Income 

Taxes of CFCs

x 18.75% Inclusion Percentage

x 80% Section 960(d) Haircut

= $3 GILTI Deemed-Paid FTCs

Remember:

 CFC1 paid $120 of foreign tax, but only $20 

(20 percent × [$300 – $200]) would be 

properly attributable to tested income.
FTCs and GILTI: Example (cont’d)

33

USCo’s Section 78 Gross-Up Amount

$20 Aggregate Tested Foreign Income Taxes of CFCs

x 18.75% Inclusion Percentage

= $3.75 Section 78 Gross-Up Amount

USCo’s GILTI and Section 78 Gross-Up Amount Included in Income

$15 GILTI

+ $3.75 Section 78 Gross-Up Amount

= $18.75

USCo’s Section 250 Deduction

$15 GILTI

+ $3.75 Section 78 Gross-Up Amount

x 50% Section 250 Deduction Percentage

= $9.38 Section 250 Deduction
FTCs and GILTI: Example (cont’d)

34

USCo’s Tentative U.S. Tax Liability Associated with GILTI

$18.75 GILTI + Section 78 Gross-Up Amount 

– $9.38 Section 250 Deduction

x 21% U.S. Corporate Tax Rate

= $1.97 Tentative U.S. Tax Liability Associated with GILTI

USCo’s U.S. Tax Liability Associated with GILTI

$1.97 Tentative Tax Liability Associated with GILTI

– $3 GILTI Deemed-Paid FTCs

= $0 U.S. Tax Liability Associated with GILTI

 Note: The excess GILTI deemed-paid FTCs of $1.03 ($3 – $1.97) cannot be 

carried forward or back to other taxable years in order to offset GILTI tax liability 

in such years (and cannot be used to offset any other U.S. tax liability).
FTCs and GILTI: Modified Example

35

How would the result differ if CFC1 and CFC2 were 

subject to a foreign tax rate of 5 percent (instead of 

20 percent)?

 A lower foreign tax rate would not impact the 

CFC2 items taken into account, but it would alter 

the results as it relates to the CFC1 items taken into 

account. 

 Specifically, if CFC1 were subject to a foreign tax 

rate of 5 percent on $600 of net income, CFC1 

would pay $30 (as opposed to $120) of foreign 

tax, $5 of which would be properly attributable to 

tested income (i.e., 5 percent × [$300 – $200]). 

 CFC1 tested income would increase from $80 to 

$95 ($300 of gross tested income – $200 of 

allocable expenses – $5 of allocable taxes), which 

in turn would cause USCo’s tentative GILTI inclusion 

amount to increase to $30.

USCo Result Comparison

Foreign Tax Rate 20% 5%

Net CFC Tested Income $55 $70

CFC1 Tested Income $80 $95

CFC2 Tested Loss ($25) ($25)

NDTIR $40 $40

Aggregate QBAI $500 $500

Net Third-Party 

Interest ($10) ($10)

Tentative GILTI $15 $30
FTCs and GILTI: Modified Example (cont’d)

36

The table to the right illustrates how the 

foreign tax rate on CFC tested income impacts 

USCo’s U.S. tax liability associated with its 

GILTI as well as the USCo Group’s total tax 

cost with respect to the related CFC tested 

income.

20% Foreign Tax Rate: 

 Total tax paid by the USCo Group on 

CFC tested income is $20, all of which is 

foreign tax, with no residual U.S. tax.

5% Foreign Tax Rate: 

 Total tax paid by the USCo Group on 

CFC tested income is $10.37, $5 of 

which is foreign tax and $5.37 of which 

is residual U.S. tax on GILTI. 

USCo Result Comparison

Foreign Tax Rate 20% 5%

Tentative GILTI $15 $30

Inclusion Percentage

(GILTI / Aggregate Tested Income)

18.75% 31.58%

Deemed-Paid Credit

(Agg. Tested Foreign Income Taxes 

x Inclusion Percentage x 80%)

$3 $1.26

Agg. Tested Foreign Income Taxes $20 $5

Section 78 Gross-Up 

Amount

(Agg. Tested Foreign Income Taxes 

x Inclusion Percentage)

$3.75 $1.58

Section 250 Deduction $9.38 $15.79

Tentative U.S. Tax Liability $1.97 $6.63

U.S. Tax Liability

(Tentative U.S. Tax Liability –

Deemed-Paid Credit)

$0 $5.37
Taxation of Foreign

-Derived

Intangible Income

37
FDII: Formula

38

FDII = DII x Foreign-Derived Ratio

DEI – DTIR

(FDDEI / DEI)

DII = Deemed Intangible Income 

DEI = Deduction Eligible Income

FDDEI = Foreign-Derived Deduction Eligible Income

where:

= [DEI – (10% x QBAI)]

DTIR = Deemed Tangible Income Return

= DEI less DTIR

= 10% of QBAI

x
Deemed Intangible Income

39

 A domestic corporation’s deemed intangible 

income means the positive amount (if any) of its 

deduction eligible income less its deemed tangible 

income return (i.e., DEI – DTIR).
Deduction Eligible Income

40

 A taxpayer’s deduction eligible income is the 

positive amount (if any) of its gross deduction 

eligible income less deductions (including taxes) 

properly allocable to such gross income.

 Proposed Treasury regulations provide guidance with 

respect to the allocation and apportionment of deductions 

for purposes of calculating FDII. 
Deemed Tangible Income Return

41

 A domestic corporation’s deemed tangible income 

return means an amount equal to 10 percent of the 

corporation’s QBAI.

 The definition of the deemed tangible income return for 

purposes of computing FDII mirrors the definition of the net 

deemed tangible income return for purposes of computing 

GILTI, except that interest expense is not in the formula.

 The statutory definition of QBAI for purposes of computing 

FDII mirrors the definition of QBAI for purposes of 

computing GILTI.
Foreign-Derived Ratio

42

 The foreign-derived ratio equals the corporation’s 

foreign-derived deduction eligible income divided 

by its deduction eligible income (i.e., FDDEI/DEI).

 Term “foreign-derived ratio” is used in proposed Treasury 

regulations but is not defined in the statute.

 FDDEI/DEI is used as a proxy for determining the 

percentage of deemed intangible income that is 

foreign-derived. 

 Accuracy depends on the extent to which FDII/DII = 

FDDEI/DEI.
Foreign-Derived Deduction Eligible Income

43

 A taxpayer’s foreign-derived deduction eligible 

income is its deduction eligible income that is derived 

in connection with: 

 property that is sold by the taxpayer to any person who is 

not a U.S. person and that the taxpayer establishes to the 

satisfaction of the Secretary is for a foreign use; or

 services provided by the taxpayer that the taxpayer 

establishes to the satisfaction of the Secretary are 

provided to any person, or with respect to property, not 

located within the United States.
Foreign-Derived Deduction Eligible Income 

(cont’d)

44

 Foreign use means any use, consumption, or disposition 

that is not within the United States.

 Proposed Treasury regulations elaborate on how the 

definition of foreign use is applied when determining 

foreign-derived deduction eligible income.

 For example, under the proposed Treasury regulations, 

sales to related parties can generally qualify as FDDEI 

sales if the related party either sells the property to an 

unrelated party or uses the property in a sale to an 

unrelated party. 
Additional Considerations

45

 Select partnership provisions

 Proposed Treasury regulations adopt an aggregate approach for determining 

a domestic corporate partner’s FDII attributable to the income and assets of a 

partnership.

 A partnership is treated as a person for purposes of determining whether a 

sale to or by a partnership or a provision of services to or by a partnership is a 

FDDEI transaction. 

 Military sales

 Proposed Treasury regulations provide that sales to the U.S. government for 

resale or on-service to a foreign government under the Arms Export Control Act 

of 1976, as amended (22 U.S.C. 2751 et seq.), qualify for the deduction. 

 Documentation

 Taxpayers must provide documentation regarding whether a purchaser is a 

foreign person, whether property is sold for a foreign use, and the location of 

persons to whom (or property with respect to which) the taxpayer provides 

services is outside the United States.

 Specific documentation requirements vary depending on the type of property sale or services as 

prescribed by the proposed Treasury regulations. 
FDII Example: Facts

46

 Assume a domestic corporation (“USCo”) has $250 

of gross deduction eligible income, $150 of 

deductions allocable to that income, and QBAI of 

$100 for tax year 2019.

 Assume USCo has established to the satisfaction of 

the Treasury that $50 of its net deduction eligible 

income is foreign-derived deduction eligible 

income.
FDII Example: Deduction Eligible Income and 

Deemed Intangible Income

Deduction Eligible Income $250 Gross Deduction Eligible Income

– $150 Allocable Deductions

= $100 Deduction Eligible Income

Deemed Tangible Income $100 QBAI

Return × $10% Rate on QBAI

= $10 Deemed Tangible Income Return

Deemed Intangible Income $100 Deduction Eligible Income

– $10 Deemed Tangible Income Return

= $90 Deemed Intangible Income

47
FDII Example: Foreign-Derived Ratio and FDII

Foreign-Derived Ratio

$50 Foreign-Derived Deduction Eligible Income

÷ $100 Deduction Eligible Income

= $50% Foreign-Derived Ratio

FDII

$90 Deemed Intangible Income

× 50% Foreign-Derived Ratio

= $45 FDII

48
FDII Example: FDII Tax Liability

Section 250 FDII Deduction

$45 FDII

× 37.5% Section 250 FDII Deduction Percentage

= $16.88 Section 250 FDII Deduction

FDII Tax Liability

$45 FDII

– $16.88 Section 250 FDII Deduction

× 21% U.S. Corporate Tax Rate

= $5.9 FDII Tax Liability

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Additional Resources

 Joint Committee on Taxation, General Explanation of Public Law 

115-97 (JCS-1-18), December 2018, pp. 368-383.

 REG–104390–18 (guidance related to global intangible

low-taxed income).

 REG–104464-18 (guidance related to the deduction for 

foreign-derived intangible income and global intangible

low-taxed income). 

 REG–105600–18 (guidance related to the foreign tax credit). 

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