At CDH, it is not uncommon for us to receive several requests for information on the latest and greatest tax legislation on tap. Unfortunately, our legislative system makes this difficult to provide until bills are in their final stages ready to be signed by the president. With that in mind, we would like to dedicate the next few editions of our tax blog to explaining some of the up and coming legislation to give you an idea of the legislative trends to expect for 2015. Below are what we see as the major legislative themes for 2015 in the international tax area. Part 2 of our update will cover updates in the U.S. tax area in next month’s blog posting.
The two biggest issues in international tax currently are corporate tax inversions and the repatriation of overseas earnings.
Corporate tax inversion involve transactions by U.S. companies designed to merge into a foreign company in a country with a tax rate lower than the U.S. On a worldwide basis, the U.S. corporate income tax rate is quite high, so these transactions have become much more popular recently, until threat of legislation to curb these transactions pulled the plug on many anticipated transactions.
The most popular provision to curb corporate tax inversions is a proposed law to change the current 80% ownership requirement to 50%. If the former U.S. owners of the inverting corporation own more than this threshold of the new foreign parent after the change, the transaction qualifies as an inversion transaction. The effect of this change is to broaden the definition of an inversion transaction, thereby increasing the likelihood that the inversion transaction will be heavily taxed, since shareholders must pay tax on the unrealized gain on their stock at the time of inversion.
In addition to curbing inversions, Congress has their eye on the estimated $2 trillion of foreign earnings being held overseas that has not been taxed by the U.S. Sophisticated tax planning has allowed corporations to keep these earnings from being taxed at the usual 35% rate that would apply if they brought this money back to the U.S. through repatriation.
Proposals on repatriation of earnings range from offering a reduced 6.5% tax rate on money brought back to the U.S. to taxing the money held overseas regardless of whether it is brought back at rates ranging from 14% to 19%.
These two issues on international tax may be the only thing that both Republicans and Democrats can actually agree on, so we may see some action on these issues mixed into a larger tax reform bill sometime this year. For more information on these international tax issues, please contact Ryan Giolitto at 630-285-0215 x8214.