A new regulation is needed to coordinate section 904 expense apportionment with the GILTI rules to reflect the Congressional intent that there be a direct relationship between the foreign tax rate and the U.S. GILTI tax rate.
As noted, section 904(a) does not mention or take into account the new GILTI provisions. If literally applied to the new GILTI rules in calculating the relevant FTC, the legislative history referred to above would be rendered meaningless. Most taxpayers’ section 904 GILTI baskets would be in limitation at a level well below 10.5 percent. The legislative history clearly expresses the intent of Congress that there be a direct correlation between the foreign tax rate and the U.S. GILTI tax rate. If expenses are allocated to GILTI income for purposes of section 904, this correlation would be lost. Obviously, a regulation is needed to coordinate the section 904(a) rules and the new GILTI provisions to effect the clear statements of intent in the legislative history regarding the GILTI rules.