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State implications of federal tax reform - international business

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January 2018


On December 22, 2017, President Trump signed the 2017 tax reconciliation act (the Act) which lowers business and individual tax rates, modernizes US international tax rules, and provides the most significant overhaul of the US tax code in more than 30 years.

The Act includes several sections that will have a significant impact on state taxation: (1) a ‘deemed repatriation’ toll charge; (2) certain anti-base erosion provisions; (3) an interest expense limitation; and (4) full expensing of certain property. PwC has developed a series of Insights exploring the state tax implications of these four provisions.

In this Insight, we review the state tax implications of three intertwined provisions under the broad topic of taxation of international business operations:

  • A new measure taxing Global Intangible Low-Taxed Income (GILTI)
  • A new deduction for Foreign-Derived Intangible Income (FDII)
  • A new Base Erosion Minimum Tax (BEMT)

Note: The House-passed anti-base erosion provision, which would have created a 20-percent excise tax on most payments made by a US corporation to a related, non-US corporation, was not included in the final legislation.

For more information about the state tax implications of federal tax reform, please visit our website, which contains suggested action steps for taxpayers, current developments, and access to our state tax Insights.

The takeaway

There will likely be significant differences between the federal and state treatment of the international business provisions in the Act, even in jurisdictions that automatically conform to the Code. States with automatic conformity historically have decoupled or otherwise modified many of the international provisions of the Internal Revenue Code. Moreover, understanding the potential impact of non-conformity and mis-matches caused by partial or selective conformity will be important to many taxpayers. Some taxpayers may realize benefits from disparate state treatment, whereas others may be affected by potentially adverse state tax consequences of federal tax reform.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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