Some of what the US Senate's tax reform legislation has in store for global companies: 'anti-inversion' provisions

On the heels of the US House of Representatives' bill, the US Senate released their version of tax reform legislation. Senate Finance Committee Chairman Orrin Hatch’s Tax Cuts and Jobs Act includes several anti-corporate inversion provisions that could have quite an effect on global companies doing business in the United States.

Ineligibility for a reduced rate: Shareholders of certain redomiciled companies would be ineligible for the reduced tax rate on dividends. Keep in mind, some foreign corporations are treated as domestic corporations for US tax purposes and their shareholders would be eligible for the reduced rate.

35% rate on subpart F inclusion: If a US shareholder becomes an expatriated entity at any point within the 10-year period following enactment of the bill into law, a 35% tax rate would be imposed on the mandatory subpart F inclusion from specified foreign corporations. 

Base erosion and anti-abuse tax: If a taxpayer pays or accrues an amount to:

• a redomicile company (which is a related party of the taxpayer) and / or 
• a foreign person that is a member of the same expanded affiliate group as the redomiciled company

and such amount constitutes a reduction in gross receipts, it would be treated as a base erosion payment. 

What's next? The Senate Finance Committee is considering amendments (and hopes to approve its tax reform bill) by the end of the week. As you continue to consider your tax strategies, remember that achieving comprehensive tax reform in the US is a difficult process and more modifications are expected. Stay tuned as the US tax reform legislative process evolves.