The U.S. Tax Cuts and Jobs Act was signed into law on 22 December 2017 by President Donald Trump and significantly changed the taxation of non-U.S. corporations owned directly or indirectly by U.S. persons.
Who does it impact?
The changes significantly impact the taxation and timing of income subject to U.S. tax for U.S. shareholders of a controlled foreign corporation (‘CFC’) or a specified foreign corporation (‘SFC’). In general, a foreign corporation is a CFC if more than 50% of its voting power or value is owned by U.S. shareholders. A U.S. shareholder of a foreign corporation is a U.S. person who owns 10% or more of the total voting power or value of that foreign corporation. In general, a SFC is a foreign corporation where at least 10% of the voting power or value is owned bya U.S. corporation. As a result, an
individual that owns any interest in a foreign corporation needs to determine if that foreign corporation is a CFC or SFC and the resulting U.S. tax impact.
Unlike many of the provisions of tax reform, these changes will have immediate repercussions and can have an adverse tax impact upon individual taxpayers.
A 2017 income inclusion may be required regarding a new tax known as the Toll Charge, which is a one-time tax on the accumulated earnings of the CFC or SFC that have not yet been taxed by the U.S. An additional income inclusion may be required in future years related to another new tax known as the GILTI (Global Intangible Low Taxed Income) tax. The GILTI tax is a new annual tax on ‘excess’ profits earned by the CFC. Both the Toll Charge and GILTI are calculated by the U.S. shareholder, resulting in potential additional tax for individual shareholders. Impacted taxpayers should evaluate their current corporate structures in order to assess their tax exposure under the new tax legislation. There are certain options available that could potentially reduce the impact of the new provisions.
The key items for consideration can be found in our attached flyer.
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