Global Company Seeks 3 Changes to GILTI High-Tax Exclusion

September 10, 2019

Internal Revenue Service
CC:PA:LPD:PR (REG-101828-19)
Room 5203
Post Office Box 7604
Ben Franklin Station
Washington, DC 20044

Re: REG-I 01828-19 — Comments on the Proposed Regulations Concerning the Global Intangible Low-Taxed Income High Tax Exclusion

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 under the global intangible low-taxed income (GILTI) provisions regarding gross income that is subject to a high rate of foreign tax.

Owens Corning (OC) is a U.S.-based multinational that develops, manufactures and markets insulation, roofing, and fiberglass composites. A Fortune 500"company for 65 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.

Owens Corning's comments on the GILTI proposed regulations relate to the following three areas:

I. Retroactive election of high-tax election to alleviate NOL inequity

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.

The NOL has precluded OC from claiming the benefit a Section 250(a)(1)(B) deduction against its 2018 GILTI included in gross income. We believe that there is no reason a company should be disadvantaged in the calculation of GILT1 simply because the Company has a pm-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.

OC welcomes the GILTI high tax exclusion provisions of the proposed regulations as, albeit, a partial means of alleviating the impacts of a lost Section 250(a)(1)(B) deduction. However, the proposed applicability date to apply only to taxable years beginning on or after the date the regulations become final, offers no relief to taxpayers with large historical NOL carryforwards, the benefits of which may expire prior to the proposed effective date. The resulting inability to claim the benefits of a Section 250(a) deduction against GILTI income and taxing active foreign business income of foreign subsidiaries to the full U.S. corporate tax rate, subjects taxpayers such as OC to taxation at twice the level of comparable taxpayers with no NOL carryforwards.

IRC Section 7805(b)(7) grants the authority to the Secretary to provide such retroactive relief.

II. Annual Election of High-Tax Exception

In conjunction with the above measure, we believe that further aligning the procedure of a GILTI high tax exclusion election to the IRC 954(b)(4) election would be welcome. Given the complexities of calculating the impacts of a claiming a high tax exception, taxpayers should be allowed to follow an election procedure similar to that found under Treas. Reg. Section 1.954-1(d)(5), which makes the high tax exclusion an annual election.

The preamble asserts "the proposed regulations, which permit it taxpayers to electively exclude a CFCs high-taxed income from gross tested income allows a U.S. shareholder to ensure that its high-taxed non-subpart F income is eligible for the same treatment as its high-taxed FBCI and insurance income . . .". Whereas, the high-tax subpart F election procedure under Treas. Reg. Section 1.954-1(d)(5) is filed annually with a taxpayer's income tax return, the proposed GILTI high-tax election is filed once and remains in effect until revoked by the taxpayer. Once revoked, a new election generally cannot be made for a sixty-month period following the CFC inclusion year for which the election was revoked. As noted in the preamble, the proposed regulations affect those taxpayers that have at least one CFC with at least one QBU that has high-taxed income.

Taxpayers with a mix of high-taxed and low-taxed income in their QBUs must evaluate the benefit of eliminating any tax under IRC Section 951A with respect to high-taxed income with the cost of forgoing the use of such taxes against other Section 951A category income and the use of tangible assets in QBAL As the mix of income will vary year to year, criteria considered in one taxable year, may not apply for the following year. If a company's underlying future projections for electing in to the GILTI high-tax election are incorrect, the taxpayer may be put in a situation where it is effectively forced to incur GILTI tax simply out of fear of a sixty-month lock-out period upon revocation of the high-tax election. Policy reasons supporting a high tax carve-out argue for exempting such income regardless of whether it is consistent year-to-year and the limitations imposed under the proposed GILTI regulations, contrary to the preamble, do not result in the same treatment as a CFC's high-taxed FBCI and insurance income which allow taxpayers to elect on an annual basis.

We recommend alignment of the GILTI high-taxed income exclusion election with that of the FBCI election under Treas. Reg. Section 1.954-1(d)(5). To that end, the provisions under proposed Treas. Reg. 1-951A-2(c)(6)(v)(C) and (D) should be struck.

In summary, we believe that allowing taxpayers to electively apply the high tax exception retroactively to a taxable year beginning after December 31, 2017 and by allowing taxpayers to annually elect high tax exception could provide some level of relief to put an NOL company on a more equal footing with other U.S. corporate taxpayers and therefore ensure that Congressional intent behind the legislation is met, for years during which the NOLs are being utilized.

III. Determination of Tested Income on a CFC by CFC basis

The manner in which the proposed regulations apply the effective rate test runs contrary to both the principals of item-by-item exclusion for foreign base company income and the principals of determining foreign income taxes deemed paid under IRC section 960, which requires a direct association of current-year foreign income taxes with particular CFC income items for purposes of determining deemed paid foreign tax credits related to Subpart F inclusions and GILTI inclusions.

Whereas Proposed Treas. Reg. 1.960-1(d)(2)(ii)(B) further divides the Subpart F income group into separate items of income that are required to be tested for purposes of the high-tax exception, Proposed Treas. Reg. 1.960-1(d)(2)(ii)(C) simply provides that items of gross tested income in the GILTI tested income group aggregated and treated as gross income in a single separate tested income group. Proposed Treas. Reg. 1.951A-2(c)(6)(ii)(B) introduces the concept of tentative gross tested income items for application of the IRC Section 954(b)(4) high-tax exception. This concept of tentative gross tested income items is irreconcilable with the definition of an item of income under the IRC Section 960 deemed paid credit rules as currently drafted and runs contrary to the manner in which foreign tax is allocated and apportioned to a tested income group as defined under Proposed Treas. Reg. 1.960-1(d)(2)(ii)(C)

Conforming the proposed Section 960 deemed paid credit regulations to the Section 951A concept of tentative gross tested income would add needless complexity to the calculation of deemed paid credits under GILTI. We therefore recommend that the GILTI high-taxed income exclusion election be determined based on gross tested income on a CFC by CFC basis in conformity with the current framework of the proposed Section 960 regulations.

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@owenscoming.com.

Respectfully submitted,

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