US Tax Reforms: Impact on Cross-border Investments

The US Tax Cuts and Jobs Act of 2017 (2017 Act), generally effective for tax years beginning after 31 December 2017, enacted sweeping reforms to the system of US federal income taxation of cross-border investments. The focus of the reforms on cross-border taxation is, generally, on outbound investments by US headquartered multinational companies and moves from a worldwide system of taxation to a territorial system.

Lower rates The 2017 Act’s headline change was to lower the corporate tax rate from 35% to 21%, which, apart from certain exceptions discussed below, generally applies regardless of the nature or amount of the income of the corporation. Consequently, the cost of holding non-US subsidiaries under a US corporate parent is lessened. The lower rate does not quite match the UK corporation tax rate of 19% (falling to 17% from 1 April 2020), but compares favourably with various other G20 nations, including Japan, China and France. Much of the planning historically undertaken to reduce the overall effective tax rates of cross-border investments may now no longer be necessary. Read more.

This article was first published in the July 2018 issue of PLC Magazine.