The impact of the corporate repatriation tax

The corporate repatriation tax is one part of the new tax law. This tax specifically addresses those who have earnings abroad.

How is this different than the previous repatriation tax? The concept of a repatriation tax is not a novel one. A repatriation task was already present. However, the previous repatriation tax was set at 35 percent, a relatively high rate. Many taxpayers stated that this discouraged them from bringing their earnings back into the United States.

The new tax is a much more manageable, one-time deal, set at 15.5 percent.

Will companies take advantage of this deal? Some are likely to take the deal. Apple has reportedly agreed to repatriate its cash holdings, translating to a payment of $28 billion for the repatriation tax.

Citibank, Goldman Sachs and JP Morgan Chase have reportedly paid the repatriation tax.

How else does the corporate repatriation tax impact taxpayers? The tax will likely have two results: bring money back to the United States and shift the country into a system of territorial taxation.

Territorial taxation is a system that does not tax income earned outside of the United States. Instead, only income earned within the country is subject to tax. It is commonly used throughout the world. As such, the change in law brings the United States in line with current global practices.

Should my business consider taking advantage of this new tax deal? Those who own interests abroad need to make sure those interests are in compliance with tax reporting requirements. A failure to do so can result in fines and, in serious cases, criminal penalties.

Once this is addressed, it is wise to carefully review the details of the repatriation tax before taking the deal. The IRS has yet to provide clear and concrete guidance. Business owners can make a more educated decision once this guidance is available.

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