Key International Tax Provisions

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On December 22, 2017, President Trump signed into law the 2017 Tax Cuts and Jobs Act. This is the most consequential tax change in over 30 years.

 

Below please find a very general overview of the main international tax provisions of the law.

 

​Proposal

​Prior Law

​New Law

​Dividend exemption system
  • ​Currently no provision
  • ​A dividend-exemption system is created that exempts 100% of foreign-source dividends paid to a U.S. shareholder that owns 10% or more of the foreign corporation, subject to a one-year holding period
  • Deduction is not available for “hybrid entities”
  • No foreign tax credit is allowed, including for withholding taxes
​Repatriation tax
  • ​Previously untaxed foreign earnings are taxed at 35% corporate rate when repatriated

New Repatriation / Toll Tax

  • Accumulated foreign earnings of specified foreign corporations are deemed repatriated at the end of 2017 and are taxed at 15.5% (cash) or 8% (illiquid assets)
  • Specified foreign corporations are generally controlled foreign corporations or any foreign corporation in which a U.S. corporation owns 10% or more, directly or indirectly
  • Taxpayers can elect to pay the tax over an eight-year installment period
  • Statute of limitations on assessments of the tax is extended to six years
  • Repeals the active trade or business exception allowed for certain reorganizations
​Base Erosion / Subpart F
  • ​​Anti-deferral rules for controlled foreign corporations, foreign base company income and other provisions
New GILTI Tax
  • U.S. shareholders of CFCs are subject to tax on “global intangible low-taxed income” (“GILTI”)
  • GILTI is the excess of the shareholder’s net CFC income over the shareholder’s deemed tangible income return (the excess of 10% of the aggregate of the pro rata share of qualified business asset investment reduced by certain interest expense)
  • The domestic corporation is allowed a deemed credit up to 80% of foreign income taxes paid

 

New Base Erosion Minimum Tax (“BEAT”)

  • Establishes a base erosion minimum tax to prevent companies from stripping earnings out of the U.S. through payments to foreign affiliates that are deductible for U.S. tax purposes
  • Applies to corporations that have average annual gross receipts of at least $500  million (including foreign corporations with ECI) for the three-tax year period ending with the preceding tax year and a “base erosion percentage” of at least 3% (base erosion payments divided by total deductible payments)
  • Base erosion minimum tax is the higher of 10% of the corporation’s income without deductions for “base erosion payments” and its regular corporate liability
  • A base erosion payment is any amount paid or accrued by the taxpayer to a foreign related party for which a deduction is allowed. This includes the purchase from a foreign related party of property that is subject to an allowance for depreciation or amortization, but excludes inventory

 ​

Other Subpart F Changes

  • Basis adjustment rules would apply to transfers of intangible property from CFCs to U.S. shareholders
  • Definition of a U.S. shareholder of a controlled foreign corporation expanded to include vote or value when determining ownership
  • Subpart F constructive attribution rules allow downward attribution from foreign persons to related U.S. persons
​​Foreign Tax Credits
  • ​​Direct and indirect foreign tax credits allowed to the extent of income taxed in the U.S.
  • ​​Indirect foreign tax credit under §902 is repealed
  • Income from the sale of inventory is sourced solely on the basis of production activities

 

 
This information is based on the statutes and guidance available as of the date of publication (January 2018) and is subject to change. 


Contact

Elisa Fay

CPA

Partner-in-Charge Rödl National Tax

+1 404 525 2600

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German Speaking Contact

Matthias Amberg

StB, CPA

Partner, German Speaking

+1 312 857 1950

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