MI: Guidance issued on michigan corporate income tax treatment of mandatory repatriation and GILTI

The Michigan Department of Treasury recently issued preliminary guidance on the Michigan Corporate Income Tax treatment of Internal Revenue Code (IRC) section 965 income and Global Intangible Low Taxed Income or GILTI. With respect to section 965 income, the guidance notes that  “it is arguable that this additional income, characterized as a deemed dividend to the U.S. shareholder, is part of the shareholder’s federal taxable income – notwithstanding that the IRS in its March 2018 guidance has directed that this income be separately identified and the taxes separately paid.” Under Michigan’s corporate income tax law, to the extent included in federal taxable income, dividends from foreign persons and foreign operating entities are deducted in calculating the corporate income base, including amounts determined under Subpart F. Per Treasury’s language, this means IRC sections 951 to 964, and by extension, 965. Thus, if section 965 income is considered part of federal taxable income, a deduction would appear to be allowed. The guidance notes that there is a position that, because of the separate federal reporting and payment of section 965 income, it is not part of a taxpayer’s federal taxable income and would therefore not be in the taxpayer’s Michigan corporate income tax base. Consequently, Treasury’s preliminary understanding is that there will be no Michigan effect on a corporate income taxpayer’s liability as a result of having section 965 income.

With respect to GILTI, Treasury has preliminarily concluded that this income would also be excluded from a taxpayer’s corporate income tax base. While not considered to be Subpart F income, the Tax Cuts and Jobs Act, according to Michigan’s guidance, explicitly states that GILTI is treated in the same manner as Subpart F income. Consequently, in Treasury’s view, GILTI would also be deducted from the tax base to the extent included in federal taxable income. Specifically, Treasury would view the amount of GILTI included in federal taxable income to be net of the 50 percent GILTI deduction and the 37.5 percent FDII deduction provided under the Code. In the future, Treasury will be monitoring IRS guidance and will work with external shareholder groups on these complex issues. Further formal guidance on the corporate income tax treatment of section 965 income and GILTI will be forthcoming. Please contact Mike Bozimowski at 313-730-3183 with questions.