The Pennsylvania Department of Revenue (DOR) released Corporate Tax Bulletin 2019-02 on January 24, 2019. The DOR has interpreted existing law to allow for a dividend received deduction to eliminate global intangible low-taxed income (GILTI), but no special deduction to eliminate foreign-derived intangible income (FDII). The Department’s reasoning is as follows: GILTI income is treated as Subpart F income under § 959 of the Internal Revenue Code (IRC). IRC § 959(a) provides that amounts recognized as Subpart F income are treated as previously taxed income when they are repatriated. To avoid double taxation, Subpart F income can be eliminated under Pennsylvania’s dividend received deduction.
However, while FDII income is included in a taxpayer’s federal taxable income, the starting point for determining Pennsylvania taxable income, a portion of FDII is deducted as a special deduction under IRC § 250, to provide a federal benefit for retaining intangibles in the United States. Unlike the federal provision, Pennsylvania does not have a special deduction for this income; therefore, it is fully taxed in Pennsylvania.
The release also addresses the treatment of the income for Pennsylvania apportionment purposes. The DOR states that Pennsylvania law specifically excludes dividends from inclusion in the sales factor. Therefore, GILTI cannot be included in the calculation of the Pennsylvania apportionment factor. The release is silent as to the treatment of FDII, leaving room for interpretation.
TECHNICAL INFORMATION CONTACTS:
Mark Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com
Mary Bernard
Director
Ryan
401.272.3363
mary.bernard@ryan.com