Thomson Reuters Checkpoint Catalyst has released a comprehensive analysis of the one-time U.S. transition tax on undistributed and non-previously taxed foreign earnings of deferred foreign income corporations owned by U.S. persons.
The tax was enacted under the Tax Cuts and Jobs Act in connection with a limited participation exemption under which domestic corporate shareholders owning at least 10% of a foreign corporation can, beginning on January 1, 2018, receive distributions of foreign earnings from that foreign corporation free of U.S. tax. To clear the way for the new (partial) territorial tax system, the post-1986 historic foreign earnings accumulated offshore by deferred foreign income corporations are deemed repatriated at the close of the foreign corporation’s transition year, which can be as early as December 31, 2017.
Checkpoint Catalyst Topic #2111, Section 965 Transition Tax on Accumulated Foreign Earnings, explains how to identify U.S. shareholders with interests in deferred foreign income corporations and determine amounts subject to the repatriation tax. This includes the computation of accumulated foreign earnings attributable to each of a U.S. shareholder’s deferred foreign income corporations on each of two alternative determination dates and available offsets for deficits of other specified foreign corporations. It covers the participation exemption deductions, which vary in amount, but yield reduced tax rates of 15.5% on deferred foreign earnings held in cash and 8% on the rest, and the proportional reduction in available foreign tax credits. The Checkpoint Catalyst topic also explains the interplay between the repatriation tax, the previously taxed income rules of IRC § 959, and the basis adjustment rules in IRC § 961.
“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, Checkpoint, with the Tax & Accounting business of Thomson Reuters. “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.”
The new Checkpoint Catalyst topic is a valuable resource for tax practitioners, corporate tax departments, and other advisers across a broad range of industries.
Checkpoint Catalyst is a collection of multijurisdictional analyses of specific tax issues and business transactions from a practical, workflow perspective, covering implications at the federal, state and U.S. international levels. Content includes practical examples, commentary, and embedded workflow tools. Checkpoint Catalyst also provides expert guidance on a range of other related subjects, including:
- Controlled Foreign Corporations
- Transfer Pricing
- Entity Classification/Disregarded Entities
- Intercompany Transactions
For more information about Checkpoint Catalyst, visit checkpointcatalyst.com.
Thomson Reuters Checkpoint tackles market disruption through integrated research, editorial insight, productivity tools, online learning, content marketing solutions and news updates along with intelligent links to related content and software. It is relied on by hundreds of thousands of tax and accounting professionals, and counts among its customers 97 of the Top 100 U.S. law firms, 99 of the Fortune 100 companies, and all of the top 100 U.S. CPA firms.
