International Tax Reform under the Tax Cuts and Jobs Act of 2017June 7, 2018

The Tax Cuts and Jobs Act of 2017 (TCJA) impacts companies doing business internationally, particularly in regard to U.S. taxes on earnings of profits offshore and repatriation. There is also a notable corporate tax deduction.

Territorial System
The previous “worldwide” tax system is being transitioned to a territorial model beginning in 2018. This means income is now taxed based on where it is earned, rather than at a set rate worldwide. To aid the shift, the TCJA taxes offshore earnings that were not taxed prior, on a one-time basis, and allows domestic C-corporations to take a 100 percent Dividends-Received Deduction (DRD) for foreign sourced income.

Repatriation
The one-time deemed repatriation is designed to bring offshore earnings back into the U.S. tax system and taxed over an eight-year period. The tax rate differs between liquid and non-liquid assets, and is deferred over eight years. The deemed repatriation is taxed as Subpart F income, which has also received modifications from the TCJA.

Corporate Tax Deduction
The TCJA eliminates tiered corporate tax rates for international businesses, replacing the graduated rates with a flat 21 percent tax rate across the board. Previously, the highest rate was 35 percent, making it difficult for U.S. companies to compete globally. The corporate Alternative Minimum Tax (AMT) has also been repealed.

These are just the main takeaways of the TCJA’s effects on international tax. Between the complexity of the TCJA and that of international tax as a whole, it’s important for companies doing business overseas to consult an international tax professional. To learn more about Curchin’s tax and accounting services, visit www.curchin.com.