Update: US Treasury Issues Guidance, Extends Deadline on New Transition Tax
An update from James Debate, Corporate Tax Manager at US Tax and Financial Services
The US Treasury and Internal Revenue Service has issued updated guidance with regards to the new deemed transition tax, including an extension of the first instalment payment deadline for Americans living abroad.
As discussed previously, the deemed transition tax was entered into law by the passage of H.R. 1, the Tax Cuts and Jobs Act of 2017 (“TCJA”). This involves a one-time repatriation of the overseas profits of certain foreign companies known as controlled foreign corporations (“CFC”) at the rate of 15.5 percent on cash and cash-equivalent assets, and 8 percent on non-cash assets. The Deemed Transition tax becomes applicable for the last taxable year which begins before January 1, 2018. This means that for taxpayers with a December 31 year end, the transition tax is applicable for the 2017 tax year. For fiscal year filers, the tax becomes applicable for the 2018 tax year.
Announced on April 2, and officially published on April 16, Notice 2018-26 provides further clarity on a number of issues under the transition tax, including the timing for reporting and payment of tax. Per the new guidance, the first instalment payment of the deemed transition tax for this year will be due for Americans living abroad on June 15 as opposed to April 17.
Since passage of the law, there has been pushback from expatriate groups who feel that the new provision, as written, is inadvertently punitive on individual business owners. The new provision was intended to help corporations adjust to a new “territorial” system of taxation, however as written it also appears to apply to individuals, who may not be able to take advantage of the same deductions and rates as businesses. This extension will come as welcome relief for those advocates, however, it is clear that many uncertainties still remain.
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