Tax & Accounting Blog

Deloitte’s Chris Trump and Patrice Mano on U.S. TCJA Implications

BEPS, Blog, Checkpoint July 10, 2018

Christopher Trump is a Principal at Deloitte Tax, LLP, and leads Deloitte’s Washington National Tax (WNT) International Tax group. Prior to joining Deloitte, Mr. Trump worked in the Offices of the Associate Chief Counsel (International) and the Associate Chief Counsel (Passthroughs & Special Industries) for the Internal Revenue Service. In these roles, Mr. Trump specialized in international mergers and acquisitions, and international tax issues involving partnerships.

Patrice Mano is a WNT partner at Deloitte Tax, LLP, leading the WNT—Accounting for Income Taxes group. She consults with companies on the application of accounting standards, such as ASC 740 and IAS 12, and assists companies with financial reporting of tax implications of complex transactions and life events, such as acquisitions, divestitures, public offerings, spin-offs, and bankruptcy.

Mr. Trump and Ms. Mano answered the following questions for BEPS Global Currents on June 22, 2018 regarding the U.S. Tax Cuts and Jobs Act (TCJA):

Q: How are your clients generally responding to the TCJA?

A: Many clients have moved through the first phase of wrapping their heads around the new international tax provisions of TCJA (i.e., global intangible low-taxed income (GILTI); foreign-derived intangible income (FDII); base erosion and anti-abuse tax (BEAT)), and have performed quantitative modelling to understand the impact of the TCJA rules on their structures. Clients are performing “stand alone” modelling to forecast the impact of the international provisions for a one-year period. Clients are also preparing more comprehensive models – projected versus actual impact of the TCJA rules.

In addition, by now, most of our clients have realized that the TCJA has created what is largely a full-inclusion tax system (albeit at reduced rates), as opposed to a territorial system.

One important issue confronting our clients is the allocation of foreign tax credit (FTC) expenses, specifically whether they should be allocated to the general limitation or GILTI baskets. Another outstanding issue, which is getting a lot of press attention, is the basket of section 78 gross up for GILTI purposes.

Finally, clients are awaiting further guidance from the Treasury and IRS, to assess how their initial models may need to be adjusted.

Q: What impact is TCJA having on your clients’ financial reporting?

A: Our clients have had to determine the impact of the TCJA on their 2017 U.S. financials, due to the December 2017 enactment date of the legislation.

A lot of time has been spent by U.S.-based MNEs on understanding how the TCJA will affect their overall Q1 and Q2 2018 U.S. financial results. In addition, it does appear that Treasury has become more sensitive to this issue over the past several months.

The U.S. financial accounting rules provide specific rules for accounting for uncertain tax positions which require an entity to analyze the strength of its tax positions in order to determine the amount of potential benefit that can appropriately be recognized in the financial statements

Q: How are your clients generally responding to the BEAT rules?

A: Our clients are trying to assess the impact of the BEAT on their structures. In addition, they are currently reviewing their operational structures.

Q: What are some of challenges you see with clients in complying with the new section 965 transition tax?

A: The initial challenge to the section 965 transition tax was calculating potential tax liability and finalizing data.

Clients are now focused on making their data more fluid, given the current and potential future release of Treasury guidance on the transition tax. There are many unanswered questions on the application of the TCJA rules.

This article contains general information only and Deloitte Tax is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Tax shall not be responsible for any loss sustained by any person who relies on this article.

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