Repatriating Untaxed Foreign Earnings Using Section 311(b) Distributions or Section 964(e) Stock Sales

Introduction: Pairing Section 311(b) Distributions or Section 964(e) Stock Sales with the Section 245A DRD

U.S. multinational corporations may be able to use section 311(b) distributions or section 964(e) stock sales with the section 245A dividends received deduction (“Section 245A DRD”) to repatriate untaxed foreign earnings, tax-free. As explained in detail in our prior post, the Tax Cuts and Jobs Act, Pub. L. 115-97 (2017) (the “TCJA”) enacted section 245A which provides that the foreign-source portion of dividends received by certain domestic corporations are eligible for a dividends received deduction provided that certain requirements are met. The TCJA transitioned the United States from a worldwide tax system to a quasi-territorial tax system.[1]

As part of that transition, the United States enacted the GILTI regime as a backstop to the subpart F anti-deferral regime. Generally, under GILTI, a U.S. shareholder of a controlled foreign corporation (“CFC”) must include in its gross income the U.S. shareholder’s GILTI for a taxable year (generally, income that is not otherwise subject to U.S. tax on a current basis). Despite the subpart F and GILTI regimes, certain foreign income is excluded from GILTI and may remain untaxed, on a current basis, in the United States. These untaxed earnings represent an opportunity for taxpayers as they may be able to execute a section 311(b) distribution or a section 964(e) stock sale that repatriates untaxed foreign earnings using the Section 245A DRD.

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