U.S. Tax Reform: International Provisions
By Emily P. Graham1
The Tax Cuts and Jobs Act (the "Act") was signed into law on December 22, 2017 as H.R. 1, enacting sweeping changes to U.S tax law. The new top corporate tax rate as of New Year’s Day is 21-percent, down from 35-percent.2 The Act involves major changes to international tax.
The first change to U.S. international tax law under the tax reform is a shift from a worldwide tax system toward a territorial system. This will be accomplished by (1) imposing a one-time deemed repatriation charge on previously deferred offshore income under IRC Section 965 and (2) providing for a dividends received deduction ("DRD") of 100-percent on foreign income going forward, under IRC Section 245A. There are new rules regarding the migration of intangibles under IRC Section 367, with a broader definition of intangibles and a repeal of the active trade or business exception. Effecting both IRC Section 367 and IRC Section 482, there are valuation changes on the migration of intangibles. There are also new rules for passive and mobile foreign income: a new tax on Global Intangible Low-Taxed Income ("GILTI"), and a IRC Section 250 deduction for GILTI and Foreign Derived Intangible Income ("FDII"). Revisions have been made to Foreign Tax Credits, stock attribution rules, the definition of a U.S. shareholder under IRC Section 951, and to subpart F. There is another new tax, the Base Erosion and Anti-Abuse Tax ("BEAT") under IRC Section 59A, which functions as a minimum tax on foreign income.