26 CFR § 1.1502-51 - Consolidated section 951A.

§ 1.1502-51 Consolidated section 951A.

(a) In general. This section provides rules for applying section 951A to each member of a consolidated group (each, a member) that is a United States shareholder of any controlled foreign corporation. Paragraph (b) of this section describes the inclusion of the GILTI inclusion amount by a member of a consolidated group. Paragraphs (c) and (d) of this section are reserved. Paragraph (e) of this section provides definitions for purposes of this section. Paragraph (f) of this section provides examples illustrating the rules of this section. Paragraph (g) of this section provides an applicability date.

(b) Calculation of the GILTI inclusion amount for a member of a consolidated group. Each member who is a United States shareholder of any controlled foreign corporation includes in gross income in the U.S. shareholder inclusion year the member's GILTI inclusion amount, if any, for the U.S. shareholder inclusion year. See section 951A(a) and § 1.951A-1(b). The GILTI inclusion amount of a member for a U.S. shareholder inclusion year is the excess (if any) of the member's net CFC tested income for the U.S. shareholder inclusion year, over the member's net deemed tangible income return for the U.S. shareholder inclusion year, determined using the definitions provided in paragraph (e) of this section. In addition, see § 1.951A-1(e).

(c)-(d) [Reserved]

(e) Definitions. Any term used but not defined in this section has the meaning set forth in §§ 1.951A-1 through 1.951A-6. In addition, the following definitions apply for purposes of this section.

(1) Aggregate tested income. With respect to a member, the term aggregate tested income means the aggregate of the member's pro rata share (determined under § 1.951A-1(d)(2)) of the tested income of each tested income CFC for a CFC inclusion year that ends with or within the U.S. shareholder inclusion year.

(2) Aggregate tested loss. With respect to a member, the term aggregate tested loss means the aggregate of the member's pro rata share (determined under § 1.951A-1(d)(4)) of the tested loss of each tested loss CFC for a CFC inclusion year that ends with or within the U.S. shareholder inclusion year.

(3) Allocable share. The term allocable share means, with respect to a member that is a United States shareholder and a U.S. shareholder inclusion year -

(i) With respect to consolidated QBAI, the product of the consolidated QBAI of the member's consolidated group and the member's GILTI allocation ratio.

(ii) With respect to consolidated specified interest expense, the product of the consolidated specified interest expense of the member's consolidated group and the member's GILTI allocation ratio.

(iii) With respect to consolidated tested loss, the product of the consolidated tested loss of the member's consolidated group and the member's GILTI allocation ratio.

(4) Consolidated QBAI. With respect to a consolidated group, the term consolidated QBAI means the sum of each member's pro rata share (determined under § 1.951A-1(d)(3)) of the qualified business asset investment of each tested income CFC for a CFC inclusion year that ends with or within the U.S. shareholder inclusion year.

(5) Consolidated specified interest expense. With respect to a consolidated group, the term consolidated specified interest expense means the excess (if any) of -

(i) The sum of each member's pro rata share (determined under § 1.951A-1(d)(5)) of the tested interest expense of each controlled foreign corporation for a CFC inclusion year that ends with or within the U.S. shareholder inclusion year, over

(ii) The sum of each member's pro rata share (determined under § 1.951A-1(d)(6)) of the tested interest income of each controlled foreign corporation for a CFC inclusion year that ends with or within the U.S. shareholder inclusion year.

(6) Consolidated tested income. With respect to a consolidated group, the term consolidated tested income means the sum of each member's aggregate tested income for the U.S. shareholder inclusion year.

(7) Consolidated tested loss. With respect to a consolidated group, the term consolidated tested loss means the sum of each member's aggregate tested loss for the U.S. shareholder inclusion year.

(8) Controlled foreign corporation. The term controlled foreign corporation has the meaning provided in § 1.951A-1(f)(2).

(9) Deemed tangible income return. With respect to a member, the term deemed tangible income return means 10 percent of the member's allocable share of the consolidated QBAI.

(10) GILTI allocation ratio. With respect to a member, the term GILTI allocation ratio means the ratio of -

(i) The aggregate tested income of the member for the U.S. shareholder inclusion year, to

(ii) The consolidated tested income of the consolidated group of which the member is a member for the U.S. shareholder inclusion year.

(11) GILTI inclusion amount. With respect to a member, the term GILTI inclusion amount has the meaning provided in paragraph (b) of this section.

(12) Net CFC tested income. With respect to a member, the term net CFC tested income means the excess (if any) of -

(i) The member's aggregate tested income, over

(ii) The member's allocable share of the consolidated tested loss.

(13) Net deemed tangible income return. With respect to a member, the term net deemed tangible income return means the excess (if any) of the member's deemed tangible income return over the member's allocable share of the consolidated specified interest expense.

(14) through (16) [Reserved]

(17) Qualified business asset investment. The term qualified business asset investment has the meaning provided in § 1.951A-3(b).

(18) Tested income. The term tested income has the meaning provided in § 1.951A-2(b)(1).

(19) Tested income CFC. The term tested income CFC has the meaning provided in § 1.951A-2(b)(1).

(20) Tested interest expense. The term tested interest expense has the meaning provided in § 1.951A-4(b)(1).

(21) Tested interest income. The term tested interest income has the meaning provided in § 1.951A-4(b)(2).

(22) Tested loss. The term tested loss has the meaning provided in § 1.951A-2(b)(2).

(23) Tested loss CFC. The term tested loss CFC has the meaning provided in § 1.951A-2(b)(2).

(24) United States shareholder. The term United States shareholder has the meaning provided in § 1.951A-1(f)(6).

(25) U.S. shareholder inclusion year. The term U.S. shareholder inclusion year has the meaning provided in § 1.951A-1(f)(7).

(f) Examples. The following examples illustrate the rules of this section. For purposes of the examples in this section, unless otherwise stated: P is the common parent of the P consolidated group; P owns all of the single class of stock of subsidiaries USS1, USS2, and USS3, all of whom are members of the P consolidated group; CFC1, CFC2, CFC3, and CFC4 are all controlled foreign corporations (within the meaning of paragraph (e)(8) of this section); and the taxable year of all persons is the calendar year.

(1) Example 1: Calculation of net CFC tested income within a consolidated group when all CFCs are wholly owned by a member -

(i) Facts. USS1 owns all of the single class of stock of CFC1. USS2 owns all of the single class of stock of each of CFC2 and CFC3. USS3 owns all of the single class of stock of CFC4. In Year 1, CFC1 has tested loss of $100x, CFC2 has tested income of $200x, CFC3 has tested loss of $200x, and CFC4 has tested income of $600x. None of CFC1, CFC2, CFC3, or CFC4 has qualified business asset investment in Year 1.

(ii) Analysis -

(A) Consolidated tested income and GILTI allocation ratio. USS1 has no aggregate tested income; USS2's aggregate tested income is $200x, its pro rata share (determined under § 1.951A-1(d)(2)) of CFC2's tested income; and USS3's aggregate tested income is $600x, its pro rata share (determined under § 1.951A-1(d)(2)) of CFC4's tested income. Therefore, under paragraph (e)(6) of this section, the P consolidated group's consolidated tested income is $800x ($200x + $600x). As a result, the GILTI allocation ratios of USS1, USS2, and USS3 are 0 ($0/$800x), 0.25 ($200x/$800x), and 0.75 ($600x/$800x), respectively.

(B) Consolidated tested loss. Under paragraph (e)(7) of this section, the P consolidated group's consolidated tested loss is $300x ($100x + $200x), the sum of USS1's aggregate tested loss, which is equal to its pro rata share (determined under § 1.951A-1(d)(4)) of CFC1's tested loss ($100x), and USS2's aggregate tested loss, which is equal to its pro rata share (determined under § 1.951A-1(d)(4)) of CFC3's tested loss ($200x). Under paragraph (e)(3)(iii) of this section, a member's allocable share of the consolidated tested loss is the product of the consolidated tested loss of the member's consolidated group and the member's GILTI allocation ratio. Therefore, the allocable shares of the consolidated tested loss of USS1, USS2, and USS3 are $0 (0 × $300x), $75x (0.25 × $300x), and $225x (0.75 × $300x), respectively.

(C) Calculation of net CFC tested income. Under paragraph (e)(12) of this section, a member's net CFC tested income is the excess (if any) of the member's aggregate tested income over the member's allocable share of the consolidated tested loss. As a result, the net CFC tested income of USS1, USS2, and USS3 are $0 ($0−$0), $125x ($200x−$75x), and $375x ($600x−$225x), respectively.

(2) Example 2: Calculation of net CFC tested income within a consolidated group when ownership of a tested loss CFC is split between members -

(i) Facts. The facts are the same as in paragraph (f)(1)(i) of this section (the facts in Example 1), except that USS2 and USS3 each own 50% of the single class of stock of CFC3.

(ii) Analysis. As in paragraph (f)(1)(ii)(A) of this section (paragraph (A) of the analysis in Example 1), USS1 has no aggregate tested income and a GILTI allocation ratio of 0, USS2 has $200x of aggregate tested income and a GILTI allocation ratio of 0.25, and USS3 has $600x of aggregate tested income and a GILTI allocation ratio of 0.75. Additionally, the P consolidated group's consolidated tested loss is $300x (the aggregate of USS1's aggregate tested loss, which is equal to its pro rata share (determined under § 1.951A-1(d)(4)) of CFC1's tested loss ($100x); USS2's aggregate tested loss, which is equal to its pro rata share (determined under § 1.951A-1(d)(4)) of CFC3's tested loss ($100x); and USS3's aggregate tested loss, which is equal to its pro rata share (determined under § 1.951A-1(d)(4)) of CFC3's tested loss ($100x)). As a result, under paragraph (e)(12) of this section, as in paragraph (f)(1)(ii)(C) of this section (paragraph (C) of the analysis in Example 1), the net CFC tested income of USS1, USS2, and USS3 are $0 ($0−$0), $125x ($200x−$75x), and $375x ($600x−$225x), respectively.

(3) Example 3: Calculation of GILTI inclusion amount -

(i) Facts. The facts are the same as in paragraph (f)(1)(i) of this section (the facts in Example 1), except that CFC2 and CFC4 have qualified business asset investment of $500x and $2,000x, respectively, for Year 1. In Year 1, CFC1 and CFC4 each have tested interest expense (within the meaning of § 1.951A-4(b)(1)) of $25x, and none of CFC1, CFC2, CFC3, and CFC4 have tested interest income (within the meaning of § 1.951A-4(b)(2)). CFC1's tested loss of $100x and CFC4's tested income of $600x take into account the tested interest expense.

(ii) Analysis -

(A) GILTI allocation ratio. As in paragraph (f)(1)(ii)(A) of this section (paragraph (A) of the analysis in Example 1), the GILTI allocation ratios of USS1, USS2, and USS3 are 0 ($0/$800x), 0.25 ($200x/$800x), and 0.75 ($600x/$800x), respectively.

(B) Consolidated QBAI. Under paragraph (e)(4) of this section, the P consolidated group's consolidated QBAI is $2,500x ($500x + $2,000x), the aggregate of USS2's pro rata share (determined under § 1.951A-1(d)(3)) of the qualified business asset investment of CFC2 and USS3's pro rata share (determined under § 1.951A-1(d)(3)) of the qualified business asset investment of CFC4. Under paragraph (e)(3)(i) of this section, a member's allocable share of consolidated QBAI is the product of the consolidated QBAI of the member's consolidated group and the member's GILTI allocation ratio. Therefore, the allocable shares of the consolidated QBAI of each of USS1, USS2, and USS3 are $0 (0 × $2,500x), $625x (0.25 × $2,500x), and $1,875x (0.75 × $2,500x), respectively.

(C) Consolidated specified interest expense -

(1) Pro rata share of tested interest expense. USS1's pro rata share (determined under § 1.951A-1(d)(5)) of the tested interest expense of CFC1 is $25x, the amount by which the tested interest expense increases USS1's pro rata share of CFC1's tested loss (from $75x to $100x) for Year 1. USS3's pro rata share (determined under § 1.951A-1(d)(5)) of the tested interest expense of CFC4 is also $25x, the amount by which the tested interest expense decreases USS3's pro rata share of CFC4's tested income (from $625x to $600x).

(2) Consolidated specified interest expense. Under paragraph (e)(5) of this section, the P consolidated group's consolidated specified interest expense is $50x, the excess of the sum of each member's pro rata share of the tested interest expense of each controlled foreign corporation ($50x, $25x from USS1 + $25x from USS3), over the sum of each member's pro rata share of tested interest income ($0). Under paragraph (e)(3)(ii) of this section, a member's allocable share of consolidated specified interest expense is the product of the consolidated specified interest expense of the member's consolidated group and the member's GILTI allocation ratio. Therefore, the allocable shares of consolidated specified interest expense of USS1, USS2, and USS3 are $0 (0 × $50x), $12.50x (0.25 × $50x), and $37.50x (0.75 × $50x), respectively.

(D) Calculation of deemed tangible income return. Under paragraph (e)(9) of this section, a member's deemed tangible income return means 10 percent of the member's allocable share of the consolidated QBAI. As a result, the deemed tangible income returns of USS1, USS2, and USS3 are $0 (0.1 × $0), $62.50x (0.1 × $625x), and $187.50x (0.1 × $1,875x), respectively.

(E) Calculation of net deemed tangible income return. Under paragraph (e)(13) of this section, a member's net deemed tangible income return means the excess (if any) of a member's deemed tangible income return over the member's allocable share of the consolidated specified interest expense. As a result, the net deemed tangible income returns of USS1, USS2, and USS3 are $0 ($0−$0), $50x ($62.50x−$12.50x), and $150x ($187.50x−$37.50x), respectively.

(F) Calculation of GILTI inclusion amount. Under paragraph (b) of this section, a member's GILTI inclusion amount for a U.S. shareholder inclusion year is the excess (if any) of the member's net CFC tested income for the U.S. shareholder inclusion year, over the shareholder's net deemed tangible income return for the U.S. shareholder inclusion year. As described in paragraph (f)(1)(ii)(C) of this section (paragraph (C) of the analysis in Example 1), the net CFC tested income of USS1, USS2, and USS3 are $0, $125x, and $375x, respectively. As described in paragraph (f)(3)(ii)(E) of this section (paragraph (E) of the analysis in this example), the net deemed tangible income returns of USS1, USS2, and USS3 are $0, $50x, and $150x, respectively. As a result, under paragraph (b) of this section, the GILTI inclusion amounts of USS1, USS2, and USS3 are $0 ($0−$0), $75x ($125x−$50x), and $225x ($375x−$150x), respectively.

(g) Applicability date -

(1) In general. Except as otherwise provided in this paragraph (g), this section applies to taxable years of United States shareholders for which the due date (without extensions) of the consolidated return is after June 21, 2019. However, a consolidated group may apply the rules of this section in their entirety to all taxable years of its members that are described in § 1.951A-7(a). In such a case, the consolidated group must apply the rules of this section to all taxable years described in § 1.951A-7(a) and with respect to all members.

(2) [Reserved]

[T.D. 9866, 84 FR 29367, June 21, 2019, as amended by T.D. 9902, 85 FR 44649, July 23, 2020]