Tax Cuts And Jobs Act Of 2017 Introduces Major Reforms To The International Taxation Of U.S. Corporations

TAX CUTS AND JOBS ACT OF 2017 INTRODUCES MAJOR REFORMS TO THE INTERNATIONAL TAXATION OF U.S. CORPORATIONS
JERALD DAVID AUGUST is a Partner with Kostalanetz and Fink, LLP, in New York. His practice is limited to Federal and state income taxation, including the taxation of corporations, including members reporting under the consolidated group regulations, and pass-thru entities, including S corporations, limited liability companies and partnerships. He frequently advises clients on structuring a desired tax-free formation of a business entity, as well as a subsequent issuance of equity to a new partner or shareholder, or a purchase, sale or exchange of ownership interests in corporations or partnerships, including a planned merger or acquisition. He has also advised clients on the tax consequences attendant to workouts and debt restructurings of leveraged real estate and troubled
business enterprises. Mr. August has worked on bankruptcy tax issues involving corporations and partnerships as well as tax credit and tax accounting matters. He also has frequently been involved in tax planning for service providers (and/or service recipients) such as deferred compensation arrangements, quali ed or non-quali ed stock options or phantom stock arrangements, foreign based compensation mat- ters, and issues relevant to structuring compensation arrangements for service partners in a partnership, including hedge fund managers or managers of private equity concerns. Jerald August has advised clients on the deductibility of compensatory related payments including the potential application of parachute payment and excise tax provisions attendant to a change of control event. In addition, he also has issued tax opinions on a variety of general tax matters as well as in assessing contingent tax liabilities of a corporation under ASC 7401-10 (FIN 48) and related lings of “uncertain tax positions” with the Internal Revenue Service.
In international tax matters, Mr. August has advised business organizations and owners on planning alternatives and structures for engag- ing in foreign business or investment activities, as well as advising non-U.S. persons and individuals on the tax consequences of making investments in the U.S. His work in this area extends to tax planning with respect to intangibles, and tax compliance issues including trans- fer pricing, withholding and FACTA provisions in the Internal Revenue Code and/or applicable tax treaty.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”) of 2017, P.L. 115-97, which introduced a set of tax cuts and other reforms that will a ect substantially all U.S. taxpayers, both corporate and individual. The key feature of the new legislation was the reduction by 40 percent of the maximum federal corporate income tax rate from 35 percent to 21 percent, including quali ed personal ser- vice corporations. The 21 percent corporate tax rate, which is a at rate without a set of graduated set of lower rates on lower levels of taxable income, applies to the worldwide taxable income of a domestic cor- poration.1 On the international side, there are several major tax bene ts that Congress has provided certain U.S. corporations with respect to overseas investments in controlled foreign corporations and export sales and services income. The new law also imposes anti- base-erosion tax on large multinational business enter- prises. This article will discuss the four central or main provisions in the TCJA a ecting international taxation.
First, U.S. corporations owning 10 percent or more of the stock of a foreign subsidiary are bene tted by a
new 100 percent dividends received deduction under Section 245A in moving U.S. multinational corporate enterprises to a territorial based system through a participation exemption system for foreign dividend income from a foreign corporation other than a pas- sive foreign investment company as de ned in Sec- tion 1297. This change dramatically moved the U.S. for the rst time to a territorial based tax system but only with respect to certain domestic corporations.
A second and also highly publicized reform was the tax-advantaged repatriation of untaxed, foreign accu- mulated earnings and pro ts held by U.S. corporations through 10 percent or greater stock ownership in for- eign corporations (other than passive foreign invest- ment companies as de ned in Section 1297). It was estimated by the tax press that such untaxed earnings held o shore were in excess of $3 trillion. Pursuant to “new” Section 965, U.S. corporations can avail them- selves of a repatriation tax rate of 15.5 percent on sub- ject foreign accumulated earnings represented in the form of cash and cash equivalents, and eight percent on excess foreign accumulated earnings represented
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