U.S. Tax Reform Readiness: Territorial Tax System, Anti-Deferral Rules, Interest Expense Limitation, Operating Models

• Published in: Journal of International Taxation 2018-04, Vol.29 (4), p.54-58
• Main Authors: DiFronzo, Mike, Dewar, Ninee, Lee, Rebecca E, Fine, Ilene W, Voloshko, Alex, Merrill, Peter, Saliba, Christine, Chandrasekhar, Krishnan, Jetli, Rajiv
• Format: Article
• Language: English
• Subjects: C corporations; Controlled foreign corporations; Foreign tax credits; Interest income; International taxation; Investments; Provisions; Stockholders; Tax credits; Tax cuts; Tax Cuts & Jobs Act 2017-US; Tax legislation; Tax rates; Tax reform; Tax services; Taxable income; Taxpayers; Withholding taxes
• ISSN: 1049-6378

This column discusses tax reform readiness under the Tax Cuts and Jobs Act -- the largest overhaul of the Internal Revenue Code in 31 years -- in three areas: 1. territorial tax system and anti-deferral rules; 2. the new US interest expense limitation; and 3. the impact on operating models. The Tax Cuts and Jobs Act makes numerous changes to the US international tax rules, many of which relate to the transition from a "worldwide" to a "territorial" tax system. The most notable of those changes is new Section 245A, which provides a 100% dividends-received deduction (DRD) for the foreign-source portion of certain dividends. The Act also contains various anti-deferral provisions. These include new Section 951A, which requires US shareholders to include in income the "global intangible low-taxed income" (GILTI) of their controlled foreign corporations, and new Section 250, which allows as a deduction an amount equal to 37.5% of a domestic corporation's foreign-derived intangible income plus 50% of the GILTI amount included in gross income of the domestic corporation.