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Any tax advice included in this communication is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.

©Forte International Tax, LLC All rights reserved.

WEBINAR | NOVEMBER 19, 2020

CARES Act and International Tax Implications

Mark GasbarraForte International Tax, LLC

Alexis BergmanTrue Partners Consulting

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Moderator

Allison LavigneDIRECTOR

FORTE INTERNATIONAL TAX, LLCalavigne@forteintax.com847.922.8432

Before We Get Started:

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CARES Act and International Tax Implications

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Alexis BergmanTax DirectorTrue Partners Consulting

(312) 235-3323

Alexis.Bergman@TPCtax.com

Mark GasbarraNational Managing DirectorForte International Tax

(847) 733-0645

mgasbarra@forteintax.com

Presenters

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Jeffrey PrescottManagerForte International Tax

(847) 733-0645

jprescott@forteintax.com

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Program Description and Learning Objectives

This webinar is designed to help international tax professionals model implications of the CARES Act. Participants will understand the CARES Act Tax Provisions and the Interaction with the International Tax Provisions of TCJA.

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Program at a Glance

Program Overview – CARES Act and International Tax ImplicationsOverview of CARES Act Tax ProvisionsOverview of International Tax ImplicationsOverview of NOL Carryback and Impact on §965 Transition Tax Liability, FTCs, BEAT, §250, etc.

Examples NOL Carryback and §965 Transition Tax Liability and FTC ImplicationsBEATSection 163(j) Limitation – BEAT Interaction

Modeling ScenariosModeling Scenarios #1Modeling Scenarios #2Recap and Questions

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Highlights of CARES Act Tax Provisions

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Highlights of CARES Act Tax Provisions

Ø NOLsØ Net operating losses (NOLs) from 2018, 2019, and 2020 can be carried back 5 yearsØ NOLs fully offset taxable income (temporarily removed 80% taxable income limitation)Ø NOLs extended to pass-through entities and sole proprietors for 2018-2020

Ø Section 163(j)Ø Business interest expense limitation under Section 163(j) increased to 50% (from 30%) of adjusted taxable income (EBITDA)

for 2019 and 2020 Ø Allows a taxpayer to use its 2019 tax year EBITDA to determine the 50% interest deduction limitationØ Can elect out of the increase

Ø AMTØ Ability to claim a refund for the entire amount of the AMT credit (for taxpayers with AMT credits) in 2018 or 2018 and 2019

Ø Payroll Tax ReliefØ Delay on employer payment of 6.2% social security tax for 2020 (half to be paid in 2021 and rest in 2022)Ø Employee retention credit (“ERC”) – 50% on wages credit against employment taxes for businesses whose operations were

suspected or receipts declined greater than 50%Ø QIP

Ø Retroactively clarifying the treatment of qualified improvement property (“QIP”) costs

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NOL Carryback and Impacts Resulting from Other Tax Provisions

NOL CB to a year that BEAT applies reduces regular tax liability which may increase or create BEAT liability, reducing benefit of NOL

NOL CB to the toll tax year, will be treated as Taxpayer having made the Sec. 965(n) election to use FTCsor may elect to exclude from CB period any year to which Sec. 965 applies

ATI limitation that is increased for Sec. 163(j) may push a Taxpayer into BEAT (to extent that the interest is paid to a foreign related party

Sec. 250 deductions previously taken or to be taken in the future will be reduced by NOL utilization

Sec. 250 deductions previously taken will be reduced by the NOL CB (or to be taken in the future will be reduced by NOL CF) resulting in a lower U.S. tax savings amount

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CARES Act: Temporary NOL Relief

Ø Special elections, rules, and other restrictions:

Ø A taxpayer may elect to waive the NOL carryback entirely or skip a Section 965 inclusion year as destination year for a carryback.

Ø Waiving a carryback can be advantageous if the carryback would adversely affect favorable tax attributes that would be limited by taxable income (e.g., foreign tax credits (FTCs) or Section 250 deduction for FDII or GILTI).

Ø Numerous other limitations may apply to a carryback, including under Section 382(h) for certain built-in-losses recognized and under the consolidated return regulations governing separate return years of members.

Ø The CARES Act includes a technical correction to the TCJA that allows a fiscal year taxpayer to carryback an NOL incurred in its fiscal 2018 tax year under the prior carryback regime (allowing for a 2-year carryback period).

Ø The CARES Act NOL provisions would apply to the fiscal taxpayer’s 2019, 2020, and 2021 fiscal tax years.

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TCJA Rollbacks – Changes to NOL Utilization

Ø NOLs arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five yearsØ NOLs can be carried back as far as the 2013 tax year when the corporate tax rate was 35%Ø NOLs can fully offset corporate-level taxable incomeØ NOLs can be carried forward indefinitelyØ Taxpayer may elect to waive the entire 5-year NOL carryback period

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CARES Act: NOL Carryback and Section 965 Transition Tax Liability

Ø A taxpayer can elect to “skip” a Section 965 inclusion year in the carryback period.

Ø A taxpayer that carries back a NOL to a Section 965 inclusion year is deemed to have made a Section 965(n) election in the section 965 inclusion year.

Ø Section 965(n) allows Taxpayer to elect not to use NOL carryback

Ø The deemed section 965(n) election is automatic, without any opt-out available

Ø A Section 965(n) election can create or increase a current year NOL

Ø Any reduction to a Section 965 transition tax liability because of a NOL carryback reduces any remaining installments (no refund available).

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Potential Filing Options

Ø Form 1139, Corporation Application for Tentative Refund

Ø Subject to Joint Committee on Taxation (“JCT”) review after refund is paid

Ø JCT review applies for refunds over $5 million for “C” Corps

Ø Could be used for:

Ø Net operating loss (NOL) carrybacks

Ø Refundable alternative minimum tax (AMT) creditsØ See form instructions for limitations on using a Form 1139 instead of filing an amended return

Ø Amended Return

Ø Subject to JCT review before refund is paid

Ø Must be used where:

Ø A NOL carryback to the Section 965(a) inclusion year (“a 965 year”)

Ø A prior year foreign tax credit released due to an NOL or net capital loss carryback,

Ø A prior year general business credit released because of the release of the foreign tax credit, or

Ø A NOL carryforward to the Section 965(a) inclusion year (“a 965 year”).

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Election to Skip Section 965 Inclusion Year

Ø Election to skip a Section 965 inclusion year could be beneficial if FTCs are available to offset other taxable income that year

CARES Act Carryback with Election to Skip Section 965 Inclusion Year

2015 2016 2017 2018 2019 2020

Taxable Income 1000 1000 1000 1000 1000 -4000

Carryback -1000 -1000 0 -1000 -1000

Corporate tax rate 35% 35% 35% 21% 21% 21%

Non-965 tax liability 0 0 350 0 0 -

965 Inclusion 2000

Tax @ 8% after 965(c) Deduction 160

Tentative Tax 0 0 510 0 0 0

FTCs 0 0 350 0 0 0

Total tax liability 0 0 160 0 0 0

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Impact on Benefit of Section 965(n) Elections

CARES Act Carryback with Transition Year Loss and No 965(n) Election 2014 2015 2016 2017 2018 2019 2020

Taxable Income 1000 1000 1000 1000 -1000 1000 -4000

Carryback ? -1000 -1000 -1000 0 -1000

Corporate tax rate 35% 35% 35% 21% 21% 21%

Non-965 tax liability 0 0 0 0 0 -

965 Inclusion 2000

Tax @ 8% after 965(c) Deduction 160

Tentative Tax 0 0 0 160 0 0

FTCs 0 0 160 0

Total tax liability 0 0 0 0 0 0

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Q&A Break

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CARES Act: NOL Carryback and FTC Implications

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CARES Act: NOL Carryback and FTC Implications

Ø A greater NOL deduction may reduce a taxpayer’s FTC limitation, depending on amount and source of the loss

Ø As a result, taxpayers may have a greater FTC carryforward (sans GILTI taxes) from the NOL carryback year

Ø A US-source NOL deduction first offsets domestic income. Any excess offsets foreign income (creating or increasing an ODL account) that may be recaptured in a subsequent year

Ø Transition rules in final FTC regulations would apply to transition an ODL account to a post-TCJA tax year

Ø A foreign-source NOL deduction first offsets foreign income. Any excess offsets domestic income (creating or increasing an OFL account), which could be detrimental in a subsequent tax year, including a Section 965 inclusion year

Ø Transition rules in final FTC regulations would apply to transition this account to a post-TCJA tax year

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NOL Carryback without FTCs

Ø NOL carryback does not decrease a Section 965 inclusion due to deemed 965(n) election

Ø Carryback to 2018 and 2019 may result in 21% tax attribute (an NOL deduction) offsetting FDII and GILTI that was otherwise eligible for a lower rate because of the Section 250 deduction

Pre-CARES Act 2015 2016 2017 2018 2019 2020

Taxable Income 1000 1000 1000 1000 1000 -5000

Corporate tax rate 35% 35% 35% 21% 21% 21%

Non-965 Tax liability 350 350 350 210 210 -

965 Inclusion 2000Tax @ 8% after 965(c) Deduction

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Total tax liability 350 350 510 210 210 1,630

General CARES Act Carryback2015 2016 2017 2018 2019 2020

Current year 1000 1000 1000 1000 1000 -5000

Carryback -1000 -1000 -1000 -1000 -1000Corporate tax rate 35% 35% 35% 21% 21% 21%

Non-965 tax liability 0 0 0 0 0 -

965 Inclusion 2000Tax @ 8% after 965(c) Deduction

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Total tax liability 0 0 160 0 0 160

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NOL Carryback with FTCs

Ø NOL carryback deduction eliminates 2015 and 2016 taxable income, creating an FTC carryforward to 2017

Ø Consider source of NOL deductions and impact on ODL, OFL, and SLL accounts

Ø FTCs used in 2017 against Section 965 transition tax liability reduce remaining installments

Ø If there was a GILTI inclusion included in the TI for 2018 and 2019, it is effectively subject to a 21% rate with NO relief for double tax!

Ø Consider GILTI HT Exclusion

CARES Act Carryback with Credits

2015 2016 2017 2018 2019 2020

Taxable Income 1000 1000 1000 1000 1000 -5000

Carryback -1000 -1000 -1000 -1000 -1000

Corporate tax rate 35% 35% 35% 21% 21% 21%

Non-965 tax liability 0 0 0 0 0 -

965 Inclusion 2000

Tax @ 8% after 965(c) Deduction 160

Tentative Tax 0 0 160 0 0 160

FTCs 20 20 20 0 0

Total tax liability 0 0 100 0 0 100

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BEAT NOLs - Recap

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BEAT NOLs - Recap

Ø Applicable Taxpayer who is subject to BEAT is a taxpayer who satisfies the base erosion test:Ø 3% or greater,Ø a member of an affiliated group that represents a bank or registered securities dealer that is 2% or greater

Ø BEAT Tax = 10% x Modified Taxable Income – (Regular Tax Liability – Non-R&D Credits) Ø Section 59A(c) defines modified taxable income (MTI) as the taxable income of the taxpayer “without regard to” base erosion tax

benefits or the base erosion percentage of any NOL deduction allowed for the year.

Ø MTI starts with regular taxable income or loss (as opposed to a “re-computation-based” approach)Ø Increased by:

Ø Base erosion tax benefits for the year, plus

Ø The portion of any NOL deduction attributable to base erosion tax benefits:

Ø Determined based on the base erosion percentage in the year the NOL arose (“vintage year”)

Ø For taxable years before 1/1/2018, the base erosion percentage is zero

Ø Applies to NOL amount utilized, not unused carryforward amounts

Ø No BEAT credit carryforwards (in contrast to corporate AMT)

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The BEAT Calculation

Step 1: Determine taxpayer's aggregate groupStep 2: Determine group's gross receiptsStep 3: Determine group's base erosion percentageStep 4: If Applicable Taxpayer, perform the following calculation:

Certain Tax Credits

Determine if taxpayer is Applicable Taxpayer

CalculateBEMTA

A

BDetermineBE Payments and related benefit

C Calculate MTI

Base Erosion Minimum Tax

Amount D

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Increase to Sec. 163(j) Limitation - Business Interest Limitation Relief

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Increase to Sec. 163(j) Limitation –Business Interest Limitation Relief

Ø Under the CARES Act, the 30% of adjusted taxable income (“ATI”) limitation on business interest deductions is increased to 50% of ATI for 2019 and 2020.

Ø Taxpayers may elect not to apply the higher 50% limitation.

Ø Moreover, for its taxable year beginning in 2020, a taxpayer may elect to use its 2019 ATI as its baseline for the limitation in lieu of its 2020 ATI.

Ø Special rules for partnerships:

Ø The 50% rule above does not apply to a partnership’s taxable year beginning in 2019.

Ø Instead, 50% of the excess of the partnership’s 2019 business interest expense allocated to the partner is treated as paid or accrued in the partner’s 2020 taxable year (without regard to any requirement that would need to be satisfied) and is not otherwise subject to Section 163(j) at the partner level.

Ø The 50% rule does apply to a partnership’s 2020 taxable year.

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Section 163(j) Limitation – BEAT Interaction

Ø If the additional interest deductions are base erosion payments, any reduction to a regular tax liability may be offset by an increased BEAT liability

Ø Thus, interest deductions that would otherwise carry forward may be “wasted”

30% of ATI 50% of ATI ChangeTaxable Income Before Interest 1,000 1,000 -Interest Expense (Base Erosion Payments) (300) (500) (200)Regular Taxable Income 700 500 (200)Tax Rate 21% 21%Income Tax 147 105 (42)FTCs (77) (77) -Regular Tax Liability 70 28 (42)

Regular Taxable Income 700 500 (200)Base Erosion Payments 300 500 200Modified Taxable Income 1,000 1,000 -10% of Modified Taxable Income 100 100 -BEAT Liability 30 72 42

Total Tax Liability 100 100 -

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Q&A & Case Study

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Case Study

Legal Structure

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Scenario Comparison Report

2015 through 2019

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Scenario Comparison

Including 2020 NOL Forecast

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Allocation & Apportionment

2020 Forecast NOL

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Tax Law Parameter – Reflects Increased 2019 163(j) Limit

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Tax Law Parameter – GILTI High-Tax Exclusion is Selected

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U.S. NOL Increased by GILTI High Tax Exclusion

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2020 –Calculation Summary Reflects BEAT Increase

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FTC Summary Report – Tax Attributes Are Tracked

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ODL and NOL Are Tracked – NOL is 100% U.S. Source

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2015 Calculation Summary After the 2020 FTC Carryback

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QUESTIONS & CONTACT

For additional questions, please contact:

Mark GasbarraNATIONAL MANAGING DIRECTOR

Forte International Tax

mgasbarra@forteintax.com(847) 733-0645

FORTEINTAX.COM

Alexis BergmanDIRECTOR, INTERNATIONAL TAX

TruePartners Consulting

Alexis.Bergman@TPCtax.com(312) 235-3323

TPCTAX.COM

Forte International Tax, and True Partners Consulting appreciate the opportunity to spend time with you today and hope you found the presentation interesting and informative.

Register at FORTEINTAX.COM

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Presenter Bios

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With over 30 years of industry experience, Mark has helped many of the country’s most successful enterprises implement all aspects of international taxation. A hallmark of Mark’s career has been leveraging technology to improve tax department performance. Prior to founding Forte International Tax, Mark held leadership positions at PwC, Ernst & Young, and CliftonLarsonAllen. Mark leads the firm on its mission of achieving global tax minimization through process efficiency.

Presenter Bio

Mark C. GasbarraNATIONAL MANGING DIRECTOR

Forte International Tax, LLCmgasbarra@forteintax.com847.733.0645

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Alexis is a Director in the International Tax Practice of True Partners Consulting based in Chicago. Alexis advises multinational corporations on their most complex business transactions, developing and implementing integrated business tax solutions to enhance operational and tax efficiencies, while complying with the U.S. federal tax laws.

With a career spanning 20 years within Big Four public accounting firms and for a Fortune 500 company, Alexis focuses her practice on international corporate tax matters, advising clients on the new international tax provisions of the Tax Cuts and Jobs Act of 2017, including but not limited to, the GILTI regime, FDII, BEAT, section 163(j) and section 245A. Alexis has extensive experience advising multinational corporations on cross-border mergers and acquisitions, reorganizations, principal and finance company arrangements, intellectual property realignment strategies, repatriation techniques, Subpart F planning, foreign tax credit planning, foreign currency transactions, local country tax planning, transfer pricing, and the financial statement accounting for transactions under ASC 740.

Alexis is a skilled CPA with a Bachelors of Business Administration in Accounting from Loyola University Chicago and a Masters in Tax from DePaul University. She is a member of the American Institute of Certified Public Accountants, the Illinois CPA Society, and the International Fiscal Association, U.S. Branch. Alexis was named a 2017 International Tax Review Leading Woman in Tax.

Presenter Bio

Alexis BergmanDIRECTOR - INTERNATIONAL TAX

True Partners ConsultingAlexis.Bergman@TPCtax.com(312) 235-3323

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Jeffrey is an implementation Manager with Forte. He has worked with several multinational corporations across the United States.Prior to working at Forte, Jeffrey had extensive software development experiences, including using .Net languages to write desktop applications, websites and services. Jeffrey is skilled at converting client ideas into algorithms and code and knowledgeable about storing and manipulating various types of financial data.

PRESENTER BIO

Jeffrey PrescottManager

Forte International Tax, LLCjprescott@forteintax.com

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