Brandon Vucent and Alexey Manasuev featured in Advo​cateDai​ly​.com — Transition tax places ‘further burden’ on U.S. taxpayers

Author(s): Advo​cateDai​ly​.com staff
The fol­low­ing arti­cle first appeared in Advo​cateDai​ly​.com,  May 27, 2018.The 2017 U.S. tax reform imposed a one-time tran­si­tion tax on earn­ings of cer­tain for­eign cor­po­ra­tions — and, for affect­ed U.S. indi­vid­u­als who own shares in these enti­ties, it is crit­i­cal to deter­mine whether the new tax applies, and com­ply on a time­ly basis, U.S. tax accoun­tant Bran­don Vucen tells Advo​cateDai​ly​.com.

As Vucen, a prin­ci­pal of U.S. Tax IQ, explains, the Tax Cuts and Jobs Act, enact­ed in Decem­ber 2017, made a num­ber of crit­i­cal changes that impact U.S. cit­i­zens and Green card hold­ers resid­ing in Cana­da and out­side the Unit­ed States. One of these pro­vi­sions is a one-time tran­si­tion tax — also referred to as manda­to­ry repa­tri­a­tion — imposed by Inter­nal Rev­enue Code (IRC) Sec­tion 965.

IRC Sec­tion 965 requires U.S. share­hold­ers to pay a tran­si­tion tax on the accu­mu­lat­ed post-1986 deferred earn­ings of spec­i­fied for­eign cor­po­ra­tions.

The tax, says Vucen, also applies to U.S. cit­i­zens and Green card hold­ers who do not live in the Unit­ed States, and own shares in non‑U.S. cor­po­ra­tions —called Spec­i­fied For­eign Cor­po­ra­tions (SFCs) that include Con­trolled For­eign Cor­po­ra­tions (CFCs) or oth­er for­eign cor­po­ra­tions with a 10 per cent domes­tic cor­po­rate share­hold­er.

The Unit­ed States dis­cour­ages a defer­ral of U.S. tax via sev­er­al anti-defer­ral regimes, includ­ing Sub­part F regime. For exam­ple, cer­tain cat­e­gories of for­eign income — such as inter­est, div­i­dends and for­eign-based com­pa­ny ser­vices income — may be taxed cur­rent­ly to U.S. share­hold­ers, even when they did not receive a dis­tri­b­u­tion from the CFC.To request full arti­cle please con­tact us Con­tact Us