Proposed FDII Regulations Under Section 250

I. Introduction.

On March 4, 2019, the Internal Revenue Service (the "IRS") and the Department of the Treasury (the "Treasury") released proposed regulations (the "Proposed Regulations") regarding the deduction for "foreign-derived intangible income" ("FDII") under section 250 of the Internal Revenue Code.¹ Section 250 was enacted in 2017 as part of the tax reform act.² Very generally, section 250 provides domestic corporations with a reduced effective 13.125% tax rate on FDII, which is a formulary proxy for a domestic corporation's intangible income attributable to foreign sales and services.³ The reduced tax rate for FDII is intended to encourage U.S. multinationals to retain intellectual property in the United States rather than transfer it to a foreign subsidiary where it could generate global intangible low-taxed income ("GILTI"), which is taxable at a 10.5% rate. The Proposed Regulations also would permit individuals who make a section 962 election with