US tax reform

US tax reform

Fri 12 Jan 2018

The US tax reform Bill was enacted on 22 December 2017. The White House has statement on the passage of the Bill.  A brochure on the changes has been produced by the Mazars New York office.

Some of the main business points in the Bill that has been approved are:

  • CT rate to be 21% (from 35%);
  • Implementation of a base erosion anti-abuse tax (‘BEAT’) (the excise tax is not included);
  • Interest limitation to 30% of adjusted EBITDA, but phased to EBIT after four years (worldwide debt cap not included).  As with the UK provisions, interest which is disallowed may be carried forward to future years.;
  • Implementation of a 13.125% tax rate on foreign derived intangible income (a reduction from the normal 21% rate) and a 10.5% on global intangible low tax income (a potential increase where otherwise lower or no tax rate applies);
  • Profit repatriation rates are 15.5% for cash and cash equivalents, and 8% for all other assets.  For dividend income from 1 Jan 2018, there is a 100% participation exemption (provided a 10% interest is held for a specified 365 day holding period).  There are various exclusions from the participation exemption, such as for hybrid dividends and dividends from Passive Foreign Investment Companies.

Some points for possible consideration for affected clients could include:

  • The effective commencement date for the main parts of the Act is 1 January 2018, though many measures have separate commencement dates.
  • Consider whether interests held in non-US entities via US subs become US CFCs (controlled foreign companies) as a result of new rules (possible form 5471 reporting obligation), where they weren’t before.
  • Consider the impact of the new permanent 21% CT rate on the valuation of deferred tax assets.  The change in rate may generate a need to review of valuation of US tax impact of non-US assets for deferred tax reporting purposes.  The Act became law on 22 December 2017, so the new rates will need to be factored in to financial statements with a 31 December 2017 year end.
  • Consider impact of the tax changes on the business’s supply chains and the supply chains of its customers and suppliers, and on the group structure generally (eg locate some operations to the US).
  • Consider whether action is required from a group’s Treasury operations to refinance, possibly using increased equity funding to minimise the impact of interest restrictions, or get out of structures now caught by hybrid rules.  Some US rules that permit tax free capitalisation of debt are apparently retained.  There is unlikely to be any grandfathering for debt existing at 1 January 2018.
  • Consider impact of repatriation tax rates, and also assess impact on M&A activity (repatriation taxes are set 15.5% for cash and 8% for other assets).
  • The legislation has been rushed through and there will be more to be issued by regulation and notice – watch out for future developments.
  • Consider the possible impact of hybrid rules.

For a further discussion of the implications of US tax reform on your business, please get in touch with a member of the Mazars international or corporate tax teams.




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