Hanesbrands Urges Modification of Proposed GILTI Regs

September 3, 2019

Re: Comments to Proposed Regulations Related to the Global Intangible Low-Taxed Income (GILTI)

Dear Mr. Secretary:

Hanesbrands Inc. (HBP'), appreciates the opportunity to submit these comments to the Department of the Treasury with respect to the proposed Global Intangible Low-Taxed Income ("GILTP) regulations detailing taxation of deferred foreign source income in high-rate jurisdictions. HBI commends the Treasury Department for seeking comments and feedback from the very business entities impacted by these provisions in its effort to reflect the true legislative intent underlying the GILTI provisions.

HBI (collectively with its subsidiaries, "Hanesbrands," "we," "us," "our," "Hanes," or the "Company") is a socially responsible leading marketer of everyday innerwear and active wear apparent in the Americas, Europe, Australia and Asia/Pacific under some of the world's strongest apparel brands, including Hanes, Champion, Bonds. Maidenform, DIM, Bali, Playtex, JMS/Just My Size, Nur Die/Nur Der, L'Eggs, Lovable, Wonderbra, Berlei, Gear for Sports, Bras N things and Alternative.

In our view, the starting point for this discussion is the initial and explicit language included within the Conference Report the accompanied the Tax Cuts and Jobs Act (TCJA):

"[a]t foreign tax rates greater than or equal to 13.125 percent, there is no residual US. tax owed on GILTI, so that the combined foreign and U.S. tax rate on GILTI equals the foreign tax rate."

In practice, however, the interaction of the new GILTI rules and other provisions, notably the expense allocation rules, in too many cases results in a much higher residual US tax liability than the stated ceiling of 13.125%, as is made clear in the GILTI statute. This result not only conflicts with the statute, but also, with the consensus of more than a decade of study and debate within Congress, as well as the academic world when considering the purpose and substance of a "global minimum tax."

In light of this existing contextual language, we appreciate Treasury's decision to move forward in proposing a solution like the high-tax exception (HTE") to GILTI; without some relief the GILTI regime could prove destructive of US global business.

While our comments on the HTE proposed regulations follow, we first and foremost suggest that the objective of bringing the GILTI regime closer to the legislative intent is to establish the most rational and administrable solution that any foreign tax rate above 13.125% should not result in any residual US tax liability on GILTI income. More specifically, the most direct way to address this would be to modify the GITLI regulations, in general, to permit taxpayers to make all foreign tax credits applicable against GILTI income tax liability exceeding 13.125% without limitation. From a policy and tax administration standpoint, this would be the most efficacious way to reach this objective.

Short of that, we appreciate what appears to be an effort on Treasury's part to adopt the HTE in its initial attempt to give effect to the legislative intent. However, as Treasury is likely aware, HBI and others have concluded that in order to truly achieve this result and give certainty to companies in their anticipated tax liability associated with GILTI income some adjustments to the proposed regulations, as currently written, are needed in this regard and HBI appreciates Treasury's invitation to suggest such improvements through this notice and comment period.

For one thing, given the interaction of expense allocation rules and GILTI, many taxpayers have variable foreign tax rates across different jurisdictions typically ranging between the 13.125% and 18.9%, the "ceiline of which is the rate at which the HTE is triggered under the currently proposed regulations; these companies will see very little, if any, relief. Additionally, the specific substance within the currently proposed regulations regarding timing of a taxpayer's election with respect to the ability to avail itself of the HTE may not be fully taking into account the economic realities of a global business.

With that in mind, we recommend the following adjustments to the HTE and GILTI regimes respectively:

First, we recommend that Treasury apply the HTE with respect to GILTI income under the same terms and conditions under which the HTE is applied to a taxpayer's Subpart F income. Under those terms, instead of applying the HTE on a qualified-business-unit by qualified-business-unit (QBU) basis, it should be applied on an item-of-income by item-of income basis.

Second, the proposed rules under which the taxpayer elects the HTE provide that the first election may be revoked at any time, but cannot be renewed for five years and, if made a second time, cannot be revoked again for another five years. By locking the taxpayer's election into longer time periods than is appropriate for today's global and seemingly instantaneous business models, which can lead to very normal and sometimes drastic fluctuations of global business income, the HTE therefore fails to take into account the very real and common scenarios where corporate taxpayers experience these dramatic fluctuations in foreign income from year to year.

Furthermore, if the purpose of the HTE is to ensure that the rules and regulations ultimately governing GILTI are truly reflective of the very clearly stated legislative intent to establish a minimum global tax rate has been paid, above which there is no residual US tax liability incurred, then the rules should take into account the likely possibility that a taxpayer could be subject to differing foreign tax rates from one year to the next as a result of economic factors and business conditions residing outside their control. By locking a taxpayer into a long term election, they might not have any recourse in years in which their foreign tax rates are well above the GILTI rate, and this certainly cannot be the intent of Treasury to go outside the scope of the stated legislative intent.

Therefore, we respectfully recommend that the currently proposed regulations be modified so that the HTE election be permitted both on an annual basis, as well as applicable on an item-of income by item-of-income basis, rather than on a QBU basis as it currently stands.

The United States is the only Nation that has enacted a GILTI type regime, and it is critical that it be used to level the playing field globally, which has been a point at issue hindering US-based business relative to their foreign counterparts. In that same vein, we strongly urge caution that this regime not be allowed to create a system in which American companies are faced with even higher rates of taxation on their foreign profits (in many cases higher than the foreign tax rates to which they are subject) than their foreign competitors.

As it currently stands, taking into account the currently proposed regulations outlining the HTE, the GILTI regime will become an impediment to US companies and their ability to not only compete globally as a general matter, but also their ability to remain US-headquartered if they are to maintain the overall fiscal health of their business, as this advice is already being given to US companies. HBI stands ready to support Treasury in this regulatory process in any way that may prove constructive to producing final regulations in this space that both reflect the stated legislative intent, as well as offer protections to US-based businesses operating in the global marketplace.

Sincerely,

Bryant Purvis
Vice President of Global Tax
HANES Brands Inc
Winston-Salem, NC