Will Congress pass a foreign earnings tax?

Congress is considering a new tax proposal that would result in a minimum tax applied to the foreign earnings made by U.S. companies’. The effort is viewed as an attempt to keep funds here in the United States as opposed to sending them overseas.

How do these taxes currently work? Current law applies a 35 percent corporate tax on foreign earnings when the earnings are repatriated. Corporations can take advantage of various credits and incentives to reduce this rate, including a credit for paying foreign taxes.

What would change? The proposal would allow for a tax on the earnings regardless of whether they are repatriated or not.

Will the proposal become reality? Although it is difficult to determine the future of the proposed foreign earnings tax at this time, it is clear that opposition is strong.

One of the loudest critics of the proposal, a group backed by Charles and David Koch, state that Congress should focus on “making the American economy more competitive,” as noted in a recent piece in The Hill. A spokesperson for the group goes on to state that the proposal is nothing more than an attempt by the government to find a “new revenue stream from American businesses and their customers.”

What does this mean for entrepreneurs that conduct business internationally? This proposal and debate should be taken seriously. If nothing else, it shows the constantly evolving nature of tax law and how a single change can have a massive impact on your business dealings.

If any of these dealings are questioned or if you would like some clarification and tips on how to make sure your dealings are in compliance with applicable tax laws, it is wise to seek legal counsel. An experienced international tax attorney can provide guidance in this area and help better ensure your business interests are protected.

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