Global Company Suggests Changes to FDII, GILTI Regs

May 6, 2019

Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Re: REG-104464-18 — Comments on the Proposed Regulations Concerning the Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income

Dear Sir or Madam:

On behalf of Owens Corning, I am pleased to respond to the Internal Revenue Service's request for comments regarding the proposed regulations providing guidance on the determination of the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).

Owens Corning (OC) is a U.S.-based multinational that develops, manufactures and markets insulation, roofing, and fiberglass composites. A Fortune 500^® company for 64 consecutive years, the company develops solutions that save energy and improve comfort in commercial and residential buildings. Through its glass reinforcements business. Owens Corning makes thousands of products lighter, stronger and more durable. The company employs 8,500 in the United States and 20,000 worldwide.

OC is in a somewhat unique federal income tax position as a result of significant net operating losses (NOLs). As of December 31, 2018, OC's U.S. NOL was approximately $414,000,000. This NOL is unique — it resulted almost entirely from funding a trust to benefit employees and other claimants in connection with the settlement of asbestos-related claims. OC filed for an asbestos-related Chapter 11 bankruptcy in October 2001 and emerged from bankruptcy in October 2006. As part of the emergence, OC was required (pursuant to Title 11, USC §524(g)) to establish a trust to compensate victims and employees. The funding of the trust gave rise to NOLs.

We believe that there is no reason a company should be disadvantaged in the calculation of GILTI simply because the Company has a pre-existing NOL. Such an outcome appears contrary to Congressional intent behind the GILTI provisions (which appears to be to tax low-taxed foreign income currently, but at a reduced effective rate). For taxpayers with historic NOLs like OC, the limitation on the NOLs causes the GILTI to be taxed at a higher effective rate than it would be for similarly situated taxpayers without NOLs. As stated in the preamble to the proposed regulations, currently subjecting the active foreign business income of foreign subsidiaries to the full U.S. corporate tax rate could hurt the competitive position of U.S. corporations relative to their foreign peers. The existence of NOLs at the corporate shareholder level has no bearing on the relative competitive position of a U.S. corporation in the global marketplace.

We believe that either of the following potential measures could provide the requisite relief to put an NOL company on equal footing with other U.S. corporate taxpayers and therefore ensure that Congressional intent behind the legislation is met:

However, in addition to. or in lieu of the above measures, we believe providing a “High Tax Exception" for GILTI would provide more comprehensive relief not only to NOL companies, but to all U.S. corporate taxpayers.

Specifically, as described in the National Association of Manufacturer's (NAM) February 5, 2019 letter to the IRS (attached), we urge Treasury to craft regulations providing for an elective high-tax exception. Allowing this exception is consistent with the existing rules governing subpart F income. Under IRC Section 954(b)(4), taxpayers are given the option of electing a high-tax exception for subpart F income that faces an effective tax rate higher than 90 percent of the U.S. corporate tax rate or 18.9 percent. As stated in the TCJA conference report, a U.S. taxpayer must include Section 951A amounts "in a manner generally similar to inclusions of subpart F income.”¹ Accordingly, we believe that Treasury has the authority to provide for such an elective exception. For example, Treasury could provide a rebuttable presumption with respect to subpart F income or use the regulatory' authority under Section 951(A)(f).

Ideally, Treasury would give effect to the legislative intent of the provision and avoid imposing additional U.S. tax on earnings that are subject to a tax rate of at least 13.125 percent where earned. While a much better approach would be to allocate no expenses to Global Intangible Low-Taxed Income to enable the provision to work more like the minimum tax concept that Congress clearly intended, allowing for a high-tax exception would at least be similar to the subpart F high-tax exception and thereby allow taxpayers to essentially exclude high-taxed income from the Global Intangible Low-Taxed Income. Under the existing Section 954 subpart F high-tax exception, income that is taxed at a rate greater than 90 percent of the corporate rate (i.e., 18.9 percent) is excluded from subpart F; Treasury should adopt a similar elective regime for Section 951A income. At the current U.S. corporate tax rate of 21 percent, a high-tax exception would allow a taxpayer to elect to exclude income that is taxed at a rate of 18.9 percent or more in the local jurisdiction from its 951A amount. Moreover, a failure to provide parallel exceptions for amounts included under Sections 954 and 951A would provide an incentive for taxpayers to restructure their operations such that income that would otherwise qualify as Global Intangible Low-Taxed Income instead be recharacterized as subpart F income.

OC appreciates the opportunity to comment on the proposed regulations and would welcome the opportunity to meet with Treasury and the IRS to discuss these comments in greater detail. If you have questions or require any further information I can be reached at 419-248-6503 or Christopher.trunck@owenscorning.com.

Respectfully submitted.

Chris D. Trunck
Vice President, Tax
Owens Corning
Toledo, OH