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FGMK Initial Observations – International Highlights of the CARES ACT

Posted by : , , and on : March 29, 2020 | 8:00 am

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (“CARES Act”) was signed into law. The CARES Act provides for roughly $2 trillion of economic relief to those impacted by the COVID-19 pandemic. The Act also includes certain modifications to the Internal Revenue Code (“IRC”), of which several key international provisions are highlighted:


United States


Changes to NOL Rules


The CARES Act suspends on a temporary basis the 80 percent taxable income limitation on the use of net operating losses (“NOLs”) to offset taxable income, which was established under the Tax Cuts and Jobs Act of 2017 (“TCJA”).  Th temporary suspension of the NOL limitation would apply for tax years beginning after December 31, 2017 and before January 1, 2021. Taxpayers may choose to:


  • Carry back for five years NOLs arising in any tax year beginning after December 31, 2017, and before January 1, 2021; or
  • Exclude a particular IRC Section 965 transition tax year from the five-year NOL carryback period.


These NOL changes could affect a number of possible international provisions for taxpayers, such as:


  • Impacting a taxpayer’s Section 250 deduction for foreign derived intangible income ("FDII”) or global intangible low-tax income (“GILTI”);
  • Reducing a taxpayer’s foreign tax credit (“FTC”) limitation; and/or
  • Affecting a taxpayer’s Section 965 transition tax liability.


Section 250 Deduction


The CARES Act does not alter the taxable income limitation under Section 250, which reduces the allowable Section 250 deduction when a taxpayer's combined FDII and GILTI exceeds taxable income for the year (without regard to Section 250). Thus, the NOL tax rule changes could trigger the taxable income limitations of the deduction resulting in a taxpayer utilizing a 21 percent rate-valued tax attribute (NOL deduction) against certain income (e.g., GILTI or FDII) ordinarily subject to a lower rate of tax due to the Section 250 deduction (where a taxable income limitation otherwise wasn’t triggered).


Foreign Tax Credit Implications


Larger NOL deductions while providing potential cash tax refunds will generally reduce a taxpayer's FTC limitation, regardless of whether the NOL source is foreign or domestic. A taxpayer will likely have a greater FTC carryforward following an NOL carryback. Domestic-source NOLs may generate, or increase, an overall domestic loss (“ODL”) account. Foreign-source NOLs may generate, or increase, a separate limitation loss or an overall foreign loss account, which could be detrimental in a subsequent tax year, including in the IRC Section 965 transition tax year.


In addition, the tax rate differential between pre-TCJA and post-TCJA tax years should also be understood in contemplating the NOL carryback. Generally, FTCs carried to pre-TCJA years would be available to offset income taxed at 35 percent, while FTCs utilized in a post-TCJA year will only offset income taxed at a 21 percent rate.


Section 965 Transition Tax Liability


The NOL carryback rules under the CARES act do not allow the NOL carryback to be used against amounts included in gross income pursuant to Section 965. The taxpayer has the option of electing to exclude a transition tax year from the carryback period. This could be beneficial so as to avoid having the resulting overpayment being applied to future installments where the installment option under Section 965(h) had been elected.


That said, the NOL deduction claimed in that carryback year may increase the taxpayer's FTC carryover. FTC carryovers need to be taken into account for each successive tax year. Thus, increased FTC carryovers could be available in the applicable Section 965 transition tax year, which could have the impact of reducing the taxpayer's transition tax liability.


Expat Taxation Deadlines


Under Notice 2020-18, the due date of April 15, 2020 for all individual tax payments and returns for the 2019 tax year was automatically postponed until July 15, 2020.


However, for expatriates with a normally applicable June 15 filing due date, the postponement granted by Notice does not apply to the tax return filing. The payment due date associated with the return, originally April 15, is postponed by the Notice.


Partnership Section 1446 Withholding for Non-U.S. Partners


Generally, a foreign or domestic partnership that has effectively connected taxable income allocable to a Non-U.S. partner must pay in a withholding tax under Section 1446 on a quarterly basis, when applicable. For calendar year Partnership tax filers, Section 1446 for Quarter 1 (“Q1”) withholding is normally due April 15. It is plausible that this Q1 Section 1446 withholding was intended to be included in the extension relief under Notice 2020-18 as it relates to 2020 payment of estimated federal income taxes. However, no direct confirmation of this is available at the time of this writing.




Canada has unveiled a COVID-19 Economic Response Plan, which provides the following benefits for individuals, including but not limited to:


  • Additional time to file tax returns;
  • Mortgage payment support; and
  • Special goods and services tax credit subsidies.


Business were also provided relief under the plan, for example:


  • Additional time to file tax returns;
  • Deferral of sales tax remittances and customs payments;
  • Suspension indefinitely of all tax audits;
  • Extension of the Work-Sharing program;
  • Wage subsidies for small businesses;
  • Guarantees on qualifying business loans; and
  • Establishment of a new Canada Emergency Business Account.


In addition, the Atlantic Provinces (New Brunswick, Prince Edward Island, Newfoundland and Labrador and Nova Scotia) and related regional development agencies are in the process of implementing assistance to businesses and employees impacted by COVID-19 and the associated economic downturn.


Other Notable Provisions


  • Mexican state and local authorities have offered certain relief measures, such as:
    • Mexico City has extended tax return/payment deadlines until April 30, 2020;
    • Vehicle taxation throughout Mexico has been extended until June 30, 2020; and
    • Nuevo Leon has extended all administrative filings to April 20, 2020.
  • UK tax authorities have deferred all VAT payments until June 2020.
  • Brazil has suspended tax audits indefinitely and eased import rules.
  • Germany/Netherlands have provided mechanisms for taxpayers to apply for VAT deferments.
  • Italy has suspended tax payments for small businesses until June 30. Non-resident taxpayer filings remain due by April 30.


If you have inquiries about this article or any COVID-19 related tax developments globally, please contact any member of the international team at FGMK.


Michael Pearson


Specialty Tax Practice


Scott Simpson


Specialty Tax Practice


Jack Millhouse


Specialty Tax Practice



The summary information in this document is being provided for education purposes only. Recipients may not rely  on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. Taxpayers' positions may vary. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.


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