The 2017 tax reform reconciliation act (the Act)- the largest overhaul of the US tax code in 31 years - uses the mechanics under subpart F to impose a one-time ‘toll charge’ on the undistributed, non-previously taxed post-1986 foreign E&P of certain US-owned foreign corporations as part of the transition to a new territorial regime. The toll charge is reduced by a deduction computed in a manner that ensures a 15.5-percent effective tax rate on ‘cash’ and an 8-percent effective tax rate to the extent the inclusion exceeds the cash position.
For a ‘deeper dive’ into the toll charge and the other international provisions of the Act, see PwC Insight, Republican tax bill will significantly impact US international tax rules, December 21, 2017.
PwC on January 10 hosted a webcast on the new toll charge provision, featuring an in-depth analysis of, and insight into, key issues related to the toll charge provided by PwC Tax specialists. The webcast included detailed review of several examples that demonstrate how the toll charge operates mechanically as well as some of the numerous issues presented by the calculations required to arrive at the toll charge. This Insight reviews some of the issues discussed on the January 10 webcast.
To listen to the webcast replay and to register for future webcasts in PwC’s Tax Reform Readiness webcast series, in which PwC specialists will discuss additional key provisions of the Act and the latest administrative guidance under those provisions, go here. The next webcast, Tax reform readiness: Territorial tax system discussion and anti-deferral rules,’ will take place January 17, 2018, from 2:00 PM - 3:00 PM (EST).
Section 965 is an incredibly complicated provision in light of tax questions mentioned above. We expect additional guidance on the application of Section 965 in the near future.