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Are You Ready for Deemed Repatriation?

After much back and forth in Congress, we have the final version of the anticipated law.  In response, taxpayers of every shape and size began the process of digesting and absorbing the 500 pages of new law. It came as no surprise that the deemed repatriation provision made its way into the final bill.

Now the burning question on the minds of multi-national taxpayers everywhere is: “What do I need to know about deemed repatriation, and how do I prepare for this event?”

Deemed repatriation of all previously untaxed Earnings and Profits in Specified Foreign Corporations

For the last taxable year beginning before January 1, 2018, a U.S. shareholder that owns 10% or more of a foreign corporation must include in income its pro rata share of accumulated earnings of the foreign corporation. The income inclusion allocated to the U.S. shareholder will be reduced by the U.S. shareholder’s aggregate pro rata share of accumulated losses allocable to the U.S. shareholder from foreign corporations owned 10% or more.

To the extent, the accumulated earnings of the foreign corporation are held in cash or other liquid assets this income will be taxed at an effective rate of 15.5%. Earnings not held in liquid assets will be taxed at an effective rate of 8%. The determination of how much income is taxed as held in liquid assets will be done based on the average of liquid assets held on November 2, 2017, and the last day of the two tax years ending before November 2, 2017.

A significantly reduced foreign tax credit will be allowed to offset the income included under this provision. And tax due as a result of this inclusion may be paid in installments over eight years.

What steps can U.S. taxpayers take to prepare for the deemed repatriation?

  • Identify interests in specified foreign corporations
  • Determine if your E&P records for these entities are up to date
  • Update any E&P schedules through November 2, 2017, as needed

Withum is here to help. For questions or assistance with deemed repatriation, reach out to Withum’s Kimberlee Phelan or Chaya Siegfried, or fill out the form below and we’ll be in touch with you.

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