TCJA Encourages Repatriation through US Cross-Border Tax Rule Changes

As part of the Tax Cuts and Jobs Act of 2017, Congress cut the corporate tax rate, with the intention of encouraging the repatriation of income held by US corporations offshore and stopping US corporations from moving jobs and capital offshore.  The principal US cross-border tax rule changes are the following:

  • New deduction for dividends received from qualified foreign subsidiaries.
  • New limitations on transfers of assets to related foreign entities.
  • New tax on accumulated prior year earnings and profits held by foreign subsidiaries.
  • Repeal of foreign tax credits from foreign subsidiaries not directly owned (i.e. the subsidiary of your subsidiary) and amendment of the "gross up" of income for foreign taxes withheld, and creation of new category of foreign taxes.
  • Changes to controlled foreign corporation (CFC) definition to remove 30 day ownership requirement (now a CFC on day one) and to include foreign related shareholders as US shareholders for ownership percentage calculation.
  • New deduction for C Corporations of foreign derived intangible income (FDII), 50% of the global intangible low-taxed income (GILTI), and subpart F income.
  • New limitation on income shifting through transfers of certain intangible assets.
  • New limitation on related party interest and royalty payments.

These changes make a clear statement that cross-border tax rules are far reaching.  If you believe that your company is impacted by these changes, a deeper discussion of the requirements and reporting is likely appropriate.  Please contact Steve Gallant to schedule a meeting to evaluate the compliance necessary for your particular situation.

Written by Larry Andler.