Acquirers purchasing companies with foreign entities should consider making a Section 338(g) election, which provides a step-up of the acquired assets to fair market value (“FMV”). The reason? The new tax bill contains a provision in which a U.S. shareholder of any controlled foreign corporation (CFC) is required to include its global intangible low-taxed income (“GILTI”) in gross income for the tax year. 

As the GILTI is based on the tax basis of the tangible assets of the CFC, a step-up of the tangible assets to FMV through a Section 338(g) election will result in an adjusted tax basis of the tangible assets based on FMV, which is typically higher than the prevailing tax basis. The higher adjusted tax basis increases the deemed tangible income return, which in turn reduces the global intangible low-taxed income and associated tax.