Could the new tax bill allow repatriation of offshore funds at a lower tax rate? It is believed that US non-financial companies have almost $2 Trillion (yes, Trillion with a “T”) and 70% of that money is located overseas as US corporations structured companies and transactions to move income to lower tax regimes around the world. The new GOP tax plan has proposed a “mandatory 12% one-time tax on pre-existing foreign earnings” whether that money is repatriated to the United States or not.
Currently multi-national corporations pay taxes on foreign profits in the sovereignty where the profit is actually earned. A US company may establish a separate entity in a foreign tax sovereignty and structure transactions to ensure “profit” is realized within these offshore entities at the lower rate of that nations tax. If a US company earns profits abroad and repatriates them under the present system, they would pay roughly 35% in tax less any taxes paid to the sovereign entity.
One of the primary reasons to repatriate the money under the proposed new tax system would be to extinguish debt. This would be attractive as the present deduction for interest paid on this debt may also be eliminated in the final version of the new plan. Therefore, the new plan purports to remove both the incentive to borrow capital in the US as well as to keep earnings overseas. The “modernized” US tax code would purportedly create a new wave of investment and opportunity as the United States becomes an attractive source of capital as well as earnings.
If the new corporate tax laws allow repatriation of offshore funds companies will be required to assess not only the nature of their foreign corporate ownership but how they should restructure business transactions to minimize tax exposure while maintaining the highest returns upon the investment of capital.
Allen Barron is uniquely positioned to guide our clients through these changing and challenging times. Our integrated business, tax, legal and accounting services provide a much broader and more accurate insight into these challenges than any single practitioner. We analyze the impact of international business decisions upon every aspect of our client’s business and help to design internal processes and accounting systems which provide critical information to inform future decision making. If the new system would allow repatriation of offshore funds in exchange for a lower one-time tax of 12% or a 12.5% rate for those which are paid over 8 year installments businesses and corporate executives will face complex yet critical business decisions.
We invite you to contact us or call 866-631-3470 for a free consultation to discuss your cross-border entities, transactions and accounting systems and how Allen Barron can leverage economies of scale to provide more comprehensive and accurate insight and counsel while preserving critical operating capital.