US Tax Reform

On 22 December 2017, President Trump signed into law, the “Tax Cuts and Jobs Act” resulting in the most significant tax reform in the
US for more than 30 years

US Tax Reform – Key Business Measures

The key business measures in the US tax reform package were:

  • Reducing the corporate income tax rate to 21% from 35%. The rate reduction took effect from 1 January 2018.
  • A move to a full dividend exemption regime for dividends from non-US companies, requiring a 10% holding.
  • As part of the transition to a participation exemption regime, a one-time mandatory tax imposed on foreign earnings retained outside the US. The deemed repatriation tax rates for the transition to a territorial tax system are 15.5% for earnings held in cash or liquid assets and 8% for the remainder.
  • A minimum tax on profits arising to foreign subsidiaries of US multinationals from the exploitation of intangible assets known as “global intangible low-taxed income” (GILTI).
  • Adopting the Base Erosion Anti-Abuse Tax (BEAT). The BEAT will generally impose a minimum tax on certain deductible payments made to a foreign affiliate, including payments such as royalties and management fees, but excluding cost of goods sold.
  • Restricting interest deductions for tax years beginning 31 December 2017 to 30% of EBITDA. For tax years beginning after 31 December 2021, the limitation will be 30% of a measure similar to EBIT (no addback for depreciation and amortisation).
  • Other provisions targeted at cross-border transactions, including revised treatment of hybrids and a new special tax incentive for certain foreign-derived intangible income.