“Time is nature’s way to keep everything from happening at once.” This quote has been attributed to Woody Allen; John Archibald Wheeler, a physicist and contemporary of Albert Einstein; and to Ray Cummings, a science fiction author. Regardless of the actual original source, the observation is spot on when it comes to tax reform.
As lobbying efforts grind on, the shape of tax reform remains somewhat hazy. What can businesses do now, while they have time, so that everything doesn’t happen at once?
So far, we know a few things are certain. While the policy details of healthcare reform and infrastructure spending are yet unresolved, tax reform must come as close to revenue neutral as possible. There’s also a powerful desire to reduce overall corporate tax rates so that the United States better aligns with those of other developed countries. But there must be a “sweetener” to allow for an overall rate reduction.
The border tax adjustment could prove to be a significant revenue generator, but it’s mired in controversy. A better bet would be the repeal of tax deferral on earnings from foreign subsidiaries. Both the House GOP plan and the Trump proposal call for mandatory recognition of deferred income, albeit at a lower rate, followed by a repeal of deferral of future earnings. Clever taxpayers will prepare for this provision now — while they have time.
But how to prepare? Check and make certain your tax attribute calculations are up to date, such as the “earnings and profits” of foreign subsidiaries (with retained earnings calculated using tax accounting principles). Understand your company’s foreign tax credit position — in other words, are you able to take a credit? Determine whether it’s possible to repatriate income now, with certainty of the results. Model multiple forced repatriation scenarios to determine how best to position the company.
Taxpayers who prepare for tax reform can ensure that everything doesn’t “happen at once” and exemplify this quote, most certainly from Zig Ziglar: “Expect the best. Prepare for the worst. Capitalize on what comes.”
Your Plante Moran International Tax team has new, state-of-the-art tools to help you prepare for coming changes. Please give us a call.