Changes to US tax code will affect all companies doing business in the US
On 22 December 2017, the Tax Cuts and Jobs Act was signed into law by President Trump. It will provide the most comprehensive overhaul of the US tax code in more than 30 years. The reformed US tax system will affect group companies doing business in the US. The most obvious areas that will be affected include tax accounting of US corporations and transfer pricing in relation to US companies/activities.
31 Jan. '18 Gert-Jan Hop
Key provisions of the new US tax code from a corporate tax perspective
- Corporate Income Tax Rate Reduced from 35% to 21%. Effective from 1 January 2018 – a pro rata calculation will be required for US corporations not using a calendar year-end.
- 100% Dividend Participation Exemption. Dividends received from 10% owned non-US subsidiaries would be exempt from US tax (capital gains still generally subject to US tax). A one year holding period applies.
- Limitations on Net Operating Loss (“NOLs”). For losses incurred in 2018 or later, the NOL deduction would be limited to 80% of taxable income.
- R&D expenses. In general, R&D expenses would be required to be amortized over a five year period, with R&D conducted outside the US required to be amortized over a fifteen year period.
- Mandatory One-Time Transition Tax. A one-time transition tax is levied on existing accumulated untaxed earnings of a US company (at a 15.5% rate for cash/cash equivalents and 8% for the balance).
- Additional Controlled Foreign Corporation Rules. The existing US CFC rules are retained and expanded to include a new category of CFC income, namely global intangible low-taxed income, which effectively subjects offshore earnings to US tax at a 10.5% rate. In addition, certain export income (including royalties, services, sales) earned by US companies should become subject to US tax at a rate of 13.125%.