The US Internal Revenue Service (IRS) and the US Department of Treasury have released Rules Regarding Dual Consolidated Losses and the Treatment of Certain Disregarded Payments, in which it proposed regulations that offer guidance on the dual consolidated loss (DCL) rules.

The regulations are focused on the interaction with Pillar Two of the OECD Global Anti-Base Erosion Model Rules (GloBE Rules).

The proposed regulations also address the application of the dual consolidated loss rules to certain foreign taxes that are intended to ensure that multinational enterprises pay a minimum level of tax, including exceptions to the application of the dual consolidated loss rules with respect to such foreign taxes.

It proposes regulations include rules regarding certain disregarded payments that give rise to losses for foreign tax purposes.

Regarding the interaction with Pillar Two (GloBE rules), the guidance discussed provisions related to the tax challenges arising from the digitalisation of the economy global anti-base erosion model rules, safe harbours and penalty relief: Global anti-base erosion rules, and administrative guidance on the global anti-base erosion model rules.

Concerning the dual consolidated loss, Section 1503(d) of the Internal Revenue Code (IRC) was established to prevent taxpayers from exploiting expenses in dual-resident corporations. This can lead to two profitable companies, each taxed in different jurisdictions, benefiting from the losses of the dual-resident corporation.

Under IRC, section 1503(d)(1), the dual consolidated loss for any taxable year of any corporation shall not be allowed to reduce the taxable income of any other member of the affiliated group for the taxable year or any other taxable year.

The aim of Section 1503(d) and its associated regulations is to avoid such scenarios and other instances of double-deduction outcomes.

The IRS and Treasury Department have invited the public to submit comments on these proposed regulations by 7 October, 2024.

Earlier, the IRS published Notice 2023-80, which outlines the guidance regarding the foreign tax credit and dual consolidated losses in relation to the GloBE Model Rules.