The Difficulty Of GLAM 2015-002's Five-Step Approach

Keywords: GLAM 2015-002, tax rate, branch rule

With the promulgation of the check-the-box regulations and the proliferation of branches (for U.S. tax purposes), a number of U.S. international tax provisions gained significantly in importance, e.g., the loss recapture rules of §367(a) and §904(f),¹ accounting for foreign currency gains and losses of a branch under §987, and the dual consolidated loss regime of §1503(d). Another provision that gained significantly in importance with the proliferation of check-the-box branches is §954(d)(2), setting forth the so-called ''branch rules'' for purposes of the foreign base company sales income (FBCSI) Subpart F provisions.

In very simple terms, the branch rules (i.e., the ''sales branch rule'' and the ''manufacturing branch rule'') introduced by §954(d)(2) and the regulations thereunder prevent taxpayers from avoiding FBCSI by using branches (instead of controlled foreign corporations (CFCs)) for sales or manufacturing