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US Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA) was signed into law. The TCJA, the most substantial overhaul of the US Internal Revenue Code since 1986, is far-reaching and significantly changes how the US taxes domestic and multinational businesses.

The TCJA reduced the US corporate tax rate from 35% to 21%. In consideration of the reduced US corporate tax rate, the TCJA adopted measures intended broaden the US tax base. The US adopted new limitations on the ability to deduct interest expense and adopted a new base erosion and anti-abuse tax (BEAT), which is effectively an alternative minimum tax for certain large corporations that is calculated by adding back certain deductible payments made to related parties.

Key challenges

The TCJA transitions the US towards a territorial system, imposing a transition tax on previously untaxed earnings of non-US subsidiary and adopting a limited participation exemption for dividends received by such subsidiaries. However, the quasi-territorial nature of the system is illustrated by the adoption of a new tax on global intangible low-taxed income (GILTI) of non-US subsidiaries and its corollary, the new deduction for foreign derived intangible income (FDII) of US corporations.

The changes enacted by the TCJA are significant and it is imperative that multinationals consider the impact on their existing structures and future decisions.

Navigating the changes

The Eversheds Sutherland tax team is here to help you understand and navigate the changes wrought by the TCJA.

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