Discussion Topic 1: The Tax Cuts and Jobs Act of 2017 substantially changed how the United States taxes foreign subsidiary operation of United States companies by establishing a participation exemption system for taxing non-Subpart F foreign-source income that a domestic corporation earns through a foreign corporation. How are dividend distributions made after January 1, 2018, treated? How does this create a quasi-territorial system for domestic corporations?
Discussion Topic 2: The reforms enacted by the Tax Cuts and Jobs Act of 2017 had a significant impact on the Subpart F provisions. Starting in 2018, how are foreign-source dividends that a domestic corporation receives from a 10%-or-more-owned foreign corporation taxed? What are the provisions related to paying the “transition tax” referenced under the new law?
Do the discussion first with citation and references then response each posted down below.
Posted 1
The reforms enacted by the TCJA of 2017 had a significant impact on the subpart F provisions. 26 US Code Sec. 952 defines subpart F income as any controlled foreign corporation income. International provisions as they applied to foreign source dividends received by domestic corporations from specified 10% owned foreign corporations prior to 2017 are that “U.S. citizens, resident individuals and domestic corporations generally are taxed on all income, whether earned in the United States or abroad” (IRS.gov). However, starting in 2018, in accordance with the TCJA, a 100% deduction is allowed for the foreign-source portion of dividends received from such domestic corporations.
To promote the repatriation of capital, the US Code Sec 965 transition tax requires shareholders, as defined under Sec. 951(b), to pay tax on “untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States” (IRS.gov). Previously, shareholders could defer US taxes by keeping assets in a foreign company. Now, they have a new tax per Sec 965 that applies to previously untaxed assets dating all the way back to 1987. Both individuals and businesses are subject to this tax if they own at least 10% stock in a foreign corporation. The tax rate itself is 15.5% on accumulated earnings and profits. However, those in the highest tax bracket can expect to pay 17.5% transition tax on earnings and profits. This is a move from a tax system where US international corporations paid on their global earnings, to a hybrid territorial system, where foreign income is less likely exempt from tax.
References
Legal Information Institute. (n.d.). 26 U.S. Code § 952 – Subpart F income defined. Legal Information Institute. Retrieved November 8, 2021, from https://www.law.cornell.edu/uscode/text/26/952.
Posted 2
The Tax Cuts And Jobs Act of 2017 made significant changes that affected international and domestic businesses in many ways. Starting in 2018, deductions for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations were changed (§ 245A New). now a 100 percent deduction is allowed for the foreign-sourced portion. Another thing that changed is that Section 965 imposed a transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated.
The TCJA also eliminated the 30-day requirement for subpart-f. on top of this, it also repealed the inclusion based on withdrawal of previously excluded Subpart F income from qualified investments. now, reduction in investment in foreign base shipping operations does not trigger recognition of previously excluded income. The final thing it did in regards to subpart-f is introducing a “properly attributable to” standard to compute deemed paid taxes with subpart-f inclusions.
Tax cuts and jobs act: A comparison for large businesses and international taxpayers. Internal Revenue Service. (n.d.). Retrieved November 8, 2021, from gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-large-businesses-and-international-taxpayers.”>https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-large-businesses-and-international-taxpayers.
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