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Semiconductor Giant Restructures to Avoid BEAT, GILTI

POSTED ON Feb. 4, 2019
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Qualcomm has positioned itself to avoid base erosion and antiabuse tax and the tax on global intangible low-taxed income by reclassifying its foreign subsidiaries for U.S. tax purposes. 

“Substantially all of our income is in the U.S. and qualifies for preferential treatment as [foreign-derived intangible income], and the impact of GILTI and BEAT are negligible” as a result of recent restructuring, the company said in its first-quarter 2019 earnings report, filed with the Securities and Exchange Commission on January 30. 

Several of Qualcomm’s controlled foreign corporations made check-the-box elections in fiscal 2019 to be treated as U.S. branches for federal income tax purposes. As a result, Qualcomm “will significantly reduce the risk of being subject to GILTI and BEAT," the company said. The check-the-box elections also yielded a tax benefit of $570 million in the first quarter because of the creation of new U.S. net deferred tax assets. 

“We expect our non-GAAP [generally accepted accounting principles] annual effective tax rate in fiscal 2019 to be approximately 0 percent,” thanks to the Tax Cuts and Jobs Act and the company’s tax restructuring, CFO George Davis said during the company’s January 30 investor call. Without the first-quarter benefit, the annual rate would be roughly 12 percent for the remainder of the fiscal year, he said.

Qualcomm is expecting its fiscal 2019 tax rate to be a 7 percent benefit under GAAP, thanks to the $570 million tax benefit. That tax rate is also influenced by the year’s FDII deduction and research and development tax credits, the company said. Qualcomm reported a $6 billion charge in the first quarter of 2018 related to the TCJA, the vast majority of which was related to the repatriation toll charge.

Several multinational corporations and banks have reported quarterly results recently, and while it’s not uncommon for companies to offer updated calculations concerning the TCJA’s effects — particularly given guidance on various provisions that was released in 2018 — the disclosure of specific TCJA-related foreign subsidiary reclassifications so far appears to be less common. 

Last year, Qualcomm survived a hostile takeover attempt by then-Singapore company Broadcom, which has since redomiciled to the United States.In March 2018 the Committee on Foreign Investment in the United States recommended that President Trump block the deal out of concern that Broadcom would hinder Qualcomm’s 5G development efforts, giving China an edge. 

Qualcomm later abandoned an attempted $44 billion acquisition of NXP Semiconductors N.V. after almost two years, when the deal failed to secure Chinese approval by its signing deadline. Some observers have speculated that the Chinese holdout was related to trade tensions with the United States.