Tax Cuts & Jobs Act 2017 – Provisions Relevant for International Taxpayers

INTERNATIONAL PROVISIONS

The Tax Cuts and Jobs Act substantially altered numerous tax provisions applicable to multinational companies. The most significant modification is a move closer to a territorial tax system for corporations by way of a deduction for foreign-sourced dividends received from specified 10% owned foreign corporations. Deemed repatriation of deferred foreign income also is a part of the Act, as are new rules regarding global intangible low-taxed income and foreignderived intangible income. For those primarily impacted (i.e. United States corporations with foreign subsidiaries), the ramifications of the Tax Cuts and Jobs Act cannot be overstated

DEDUCTION FOR FOREIGN-SOURCED DIVIDENDS FROM FOREIGN CORPORATIONS

PRIOR LAW

Traditionally, the United States has taxed all United States persons – including United States-domiciled corporations – on a worldwide basis (i.e. they were taxed on income from any worldwide source). Recognition could be deferred on income earned through foreign subsidiaries until the income was repatriated to the United States parent (subject to certain exceptions). Offsets of tax amounts owed were available through application of the foreign tax credit.

NEW LAW

Section 245A(a) provides that, in the case of any dividend received from a specified 10-
percent owned foreign corporation by a domestic corporation which is a United States
shareholder with respect to such foreign corporation, there shall be allowed as a
deduction an amount equal to the foreign-source portion of such dividend. A “specified
10-percent owned foreign corporation” is any foreign corporation with respect to which
any domestic corporation is a United States shareholder other than a passive foreign
investment company which is not also a controlled foreign corporation. The foreignsourced portion of any dividend is an amount which bears the same ratio to the dividend as the undistributed foreign earnings of the specified 10%-owned foreign corporation bears to the total undistributed earnings of that specified 10%-owned foreign corporation.

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