Prior to the Tax Cuts and Jobs Act of 2017 (“TCJA”), the appeal of cost sharing was driven largely by the deferral of U.S. taxation on foreign earnings. Now that excess foreign returns are currently taxable as “global intangible low-taxed income” (“GILTI”), cost sharing is attractive mostly to corporate taxpayers that have decided to continue holding their intangible property (“IP”) offshore and face GILTI tax, rather than bring the foreign-based IP back to the U.S. and enjoy the benefits of “foreign-derived intangible income.” The cost sharing decision is further affected by TCJA’s changes to Code Secs. 367, 482 and 936(h)(3)(B), which enhance the government’s ability to increase the taxable amount of outbound transfers made in taxable years beginning after December 31, 2017.
This article explores the impact of the TCJA on the issues typically arising in a common fact pattern targeted by the Internal Revenue Service.