With trillions in corporate cash expected to be deemed repatriated under the Tax Cuts and Jobs Act, Thomson Reuters Checkpoint Catalyst has published an analysis of the act's transition tax on deferred foreign earnings by multinational companies.
The recent tax reform law includes a one-time transition tax on undistributed and not previously taxed foreign earnings that have been held abroad by U.S.-based corporations. Congress included a limited participation exemption under which domestic corporate shareholders that own at least 10 percent of a foreign corporation can receive distributions of foreign earnings from that foreign corporation free of U.S. tax, starting on Jan. 1, 2018. Foreign earnings that have accumulated since the 1986 tax reforms by deferred foreign income corporations are deemed to be repatriated at the close of the foreign corporation’s transition year, which can be as early as Dec. 31, 2017.
Checkpoint Catalyst Topic No. 2111, Section 965, "Transition Tax on Accumulated Foreign Earnings," discusses how tax practitioners can identify U.S. shareholders with interests in deferred foreign income corporations and calculate the amounts subject to the repatriation tax.
“New Section 965 of the code is estimated to result in the deemed repatriation of trillions of dollars in foreign earnings booked through foreign subsidiaries and accumulated offshore,” said Salim Sunderji, managing director of Checkpoint, in a statement. “This new Checkpoint Catalyst topic provides tax professionals with step-by-step guidance for computing a U.S. shareholder’s net earnings subject to the tax and complying with the associated reporting and payment obligations.”
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