Corporate America Now Knows How to Tally Its Repatriation Taxes

(Bloomberg) -- U.S. companies that had been unsure of how to calculate a new tax on profits they've stashed offshore now have official answers.

The Internal Revenue Service proposed regulations governing the so-called repatriation tax on Wednesday, detailing which corporate taxpayers are subject to the tax, which assets are on the hook and how to pay in installments. It also specifies strategies that it would target for multinationals that tried to reduce their offshore tax bills in anticipation of the new law. Some of the proposals reflect guidance the IRS had given to corporate taxpayers in press releases earlier this year.

President Donald Trump's tax overhaul requires U.S.-based companies to pay tax on the estimated $3 trillion they've stashed abroad since 1986. The new rules set a one-time rate of 15.5 percent on cash and 8 percent on non-cash or illiquid assets. Payments can be made over eight years. Previously, companies had to pay the old 35 percent corporate rate, but only if they brought the money back to the U.S.

The IRS has highlighted repatriation as an area ripe for abuse and said in July it plans to focus audits of large multinationals on how they tally their income and classify assets as cash or non-cash.

One of the proposed regulations says the IRS will ignore transactions after Nov. 2, 2017 -- the date the House introduced its first tax overhaul draft -- that lower a company's foreign earnings. Those are viewed as tax avoidance strategies, the rules said.

Another regulation about a strategy multinationals use to manage liquidity called “notional pooling” would be particularly harsh for banks, since it will cause more of their deferred foreign income to be considered cash and taxed at the higher rate, according to Robert Willens, an independent tax and accounting expert.

“There may be some sad faces on those who did not get the lowest tax rate possible on the maximum amount of earnings,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center and a former top Treasury official.

Separately, the law had appeared to make more foreign entities owned by multinationals subject to the repatriation tax, but in April the agency said that taxpayers that own less than 5 percent of a foreign entity's capital or profits won't be hit by the repatriation tax. Wednesday's regulations confirm that.

The congressional scorekeeper, the Joint Committee on Taxation, estimates the repatriation levy will generate $338.8 billion in tax revenue over 10 years. Trump has said, without specifying his source for the information, that he expects $4 trillion to return to the U.S.

Taxpayers are still awaiting more details from the IRS on two other international taxes -- the Gilti, or global intangible low-tax income, and BEAT, the base erosion and anti-abuse tax. Those proposed regulations are expected later this year.

To contact the reporters on this story: Laura Davison in Washington at ldavison4@bloomberg.net;Lynnley Browning in New York at lbrowning4@bloomberg.net

To contact the editors responsible for this story: Alexis Leondis at aleondis@bloomberg.net, Gregory Mott