The US IRS on January 15 published final regulations under section 965, which provides for a one-time transition tax on the previously untaxed foreign earnings of foreign corporations owned by US shareholders.
Section 965 deems these earnings to be repatriated and subject to tax to allow the transition to the new international tax system established in the 2017 Tax Cuts and Jobs Act.
The new regulations finalize proposed regulations
Section 965 deems these earnings to be repatriated and subject to tax to allow the transition to the new international tax system established in the 2017 Tax Cuts and Jobs Act. The new regulations finalize proposed regulations published August 1, 2018. The proposed regulations had, in turn, had adopted many rules already announced by the IRS in earlier notices.
Amanda Varma, a partner with Steptoe & Johnson, Washington, said that the final regulations appear to be generally consistent with the proposed section 965 regulations, with limited changes.
One notable change, Varma said, is a narrow exception from the definition of “cash position” for certain commodities held by a specified foreign corporation in the ordinary course of trade or business and certain privately negotiated contracts to buy or sell such assets.
Treasury and the IRS did not adopt other requested cash position exceptions, Varma said.
It will take awhile for US practitioners to digest the final regulations in detail as they are complex, she added.
The final regulations address general rules and definitions for Section 965; adjustments to earnings and profits and basis; Section 965(c) deductions; disregarded transactions; the allowance of a credit or deduction for foreign income tax; the computation of foreign income taxes deemed paid and allocation and apportionment of deductions; and elections, payment, and other special rules.
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