Bill Armstrong

Bill Armstrong

The Tax Cuts and Jobs Act makes fundamental changes to how multinational businesses are taxed for federal income tax purposes.

The following is a summary of some of the most significant implications.


For the last tax year beginning before January 1, 2018, the act imposes a new tax on a US shareholder’s pro rata share of post-1986 accumulated foreign earnings of a specified foreign corporation. This is generally any foreign corporation controlled by US owners or with at least one 10% US shareholder that is a C corporation.

The tax is imposed through section 965. C Corporations are provided with an offsetting deduction intended to reduce the rate of tax imposed to 15.5% for earnings held in cash or cash equivalents. There’s a further reduced rate of 8% for earnings invested in other assets. A reduced foreign tax credit is allowed for taxes attributable to the section 965 inclusion. Non-C Corporations aren’t afforded either the deduction or, generally, the credit.

Taxpayers can elect to pay the resulting liability over an eight-year period, which is more heavily weighted to the later years.

Those taxpayers will be required to compute their:

• Foreign subsidiaries’ net cash (or cash equivalent) positions

• Accumulated post-1986 foreign (E&P), their inclusion amounts, and deductions for 2017 tax provisions and tax filings

• Attributable foreign taxes paid (for C corporation shareholders)

The first payment will be due at the same time as the original due date for the return for the year in question.


The act allows for a 100% dividends received deduction for US C corporation shareholders of specified 10%-owned foreign corporations, effective for tax years beginning after December 31, 2017.

This means dividends from foreign affiliates may, in the future, not be subject to US federal income tax—unless the income is subject to Subpart F or another anti-deferral provision.

There is a one-year holding period requirement and an exclusion for what’s known as hybrid dividends. Any foreign withholding taxes associated with the dividend are neither creditable nor deductible.


The definition of a US shareholder has changed under the new tax law to include US persons owning 10% or more of the total value of all classes of stock.

This means that holders of nonvoting preferred shares in a foreign company may now be subject to Subpart F inclusions. With the law change, a US corporation is considered to constructively own the shares that its foreign controlling shareholder owns.

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