U.S. Treasury Relaxes Tax Rules For Offshore Profits

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Treasury Department Implements 2017 Tax Law & Eases Minimum Tax Burdens On Us Multinationals

US multinationals will from now on, be a bit less exposed to specific US taxes.  Treasury issued new rules for the implementation of two parts of the 2017 TCJA.  The first one in question is GILTI.

Global Intangible Low-Taxed Income Tax (GILTI)

GILTI affects US-based firms involved in foreign operations. It is meant to prevent US companies from booking profits in very low-tax jurisdictions – thereby evading US taxes.  It was expected to raise more than $112 billion over a period of ten years for the US Treasury.

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The new rules will allow firms to treat some assets as 50% exempt for expense allocation purposes under GILTI.  The changes will also enable firms subject to GILTI to increase their use of foreign tax credits to support research and development in the US.

Under GILTI firms must pay a tax rate of a minimum of 10.5%. If they pay less abroad, the difference goes to the US Treasury. The law was aimed mainly at technology-and pharmaceutical companies who succeeded best in moving their intellectual property off-shore and into tax havens.  The law proved perilous for firms faced with higher foreign tax rates, Proctor & Gamble and United Technologies Corp. being a case in point.  These firms found that the limits on foreign tax credits resulted in them owing GILTI even if they paid tax rates higher than the US rate.

Base Erosion And Anti-Abuse Tax (BEAT)

This law makes it harder for firms to stack their US operations with deductions and to push profits to related entities abroad.  This tax was expected to raise over $150 billion for the US Treasury over the course of ten years.

The 2017 TCJA lowered taxes for corporate entities – estimated corporate tax collectors collected up to 33% less than they would have been if not for the 2017 tax law.

BEAT was initially meant for foreign-owned firms.  Before 2017 these firms participated in asset-stripping by deducting costs in the US against its 35% tax rate by making payments to their parent companies to push profits into lower tax rated countries.  These arbitrage opportunities still exist despite the TCJA.

The companies bemoan the fact that the tax hits transactions that are not at all intended to avoid taxes, so Treasury officials added an exception to its final rule for assets that US firms buy in deals that qualify as tax-free for regular tax purposes.

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The final rules will apply to tax years ending on or after December the 17th 2018, although taxpayers can still apply 2018 rules to tax years that have ended.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason. Click here to email us and start your project.

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Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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