International Taxpayers and Businesses
As the IRS implements this major tax legislation, check this page for updates and resources to learn how the Tax Cuts and Jobs Act (TCJA) affects international businesses.
Income (including Gains and Losses)
Use tab to go to the next focusable elementGlobal Intangible Low-Taxed Income (INTL)
Under the law, a U.S. person that owns at least 10 percent of the value or voting rights in one or more controlled foreign corporations will be required to include its global intangible low-taxed income as currently taxable income, regardless of whether any amount is distributed to the shareholder.
Resources:Investment of Earnings in United States Property (IRC section 956) (INTL)
The new law enacts a participation exemption system for the taxation of certain foreign income. New proposed regulations are intended to ensure the application of section 956 is consistent with this new system and reduce the amount determined under Internal Revenue Code section 956 with respect to certain domestic corporations and stock they own (or are treated as owning) in controlled foreign corporations (CFCs).
Resources:Limitations on Carried Interest
The Tax Cuts and Jobs Act extended the holding period with respect to certain carried interests (i.e. applicable partnership interests) to three years.
Carried interests are ownership interests in a partnership that share in the partnership’s net profits. Carried interests often are issued to investment managers in connection with the investment manager’s services. These interests often result in the holder receiving capital gains which are taxed at a lower rate, rather than ordinary income.
Deductions and DepreciationBusiness Interest Expenses
Newly amended section 163(j) of the Internal Revenue Code imposes a limitation on deductions for business interest incurred by certain large businesses. For most large businesses, business interest expense is limited to any business interest income plus 30 percent of the business’ adjusted taxable income.
Resources:Depreciation and Expensing
Businesses can immediately expense more under the new law. A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million.
Resources:Modification of Limitation on Excessive Employee Remuneration
Section 162(m)(1) generally limits the allowable deduction for a taxable year for remuneration by any publicly held corporation paid with respect to a covered employee. The Tax Cuts and Jobs Act made significant amendments to § 162(m), and also provided a transition rule applicable to certain outstanding arrangements (commonly referred to as the grandfather rule). The notice provides guidance on the amended rules for identifying covered employees and the operation of the grandfather rule.
TaxesBlended Federal Income Tax Rate
Many U.S. corporations elect to use a fiscal year end and not a calendar year end for federal income tax reporting purposes. Due to a provision in the Tax Cuts and Jobs Act (TCJA), a corporation with a fiscal year that includes Jan. 1, 2018 will pay federal income tax using a blended tax rate and not the flat 21 percent tax rate under the TCJA that would generally apply to taxable years beginning after Dec. 31, 2017.
Resources:Transition Tax on Foreign Earnings (INTL)
Newly enacted section 965 of the Internal Revenue Code imposes a transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 percent rate, and the remaining earnings are taxed at an 8 percent rate. The transition tax generally may be paid in installments over an eight-year period.
News Releases: IR-2017-212, IR-2018-09, IR-2018-25, IR-2018-53, IR-2018-79, IR-2018-131, IR-2018-158 ,REG-104226-18RP 2018-47Notices: Notice 2018-07 , Notice 2018-13 , Notice 2018-26 , Notice 2018-78Questions and Answers about Reporting Related to Section 965 on 2017 Tax ReturnsPublication 5292Withholding on the Transfer of Partnership Interests by Foreign Persons (INTL)
The new law treats a foreign taxpayer’s gain or loss on the sale or exchange of a partnership interest as effectively connected with the conduct of a trade or business in the United States to the extent that gain or loss would be treated as effectively connected with the conduct of a trade or business in the United States if the partnership sold all of its assets.
In this circumstance, the new law also imposes a withholding tax on the disposition of a partnership interest by a foreign taxpayer.
The Treasury Department and the Internal Revenue Service issued Notice 2018-14 and Publication 15, Employer's Tax Guide to help businesses apply law changes to withholding. These materials are designed to help employers and employees with a variety of withholding matters during and after the transition to new, reduced tax rates and updated withholding tables.
CreditsForeign Tax Credit
The new law modified the foreign tax credit rules, which allow U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued, in several important ways to reflect the new international tax rules.