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ResourcesCorporate and Tax AdvisoryUS Tax LawDiscussion on How Tax Reform May Impact Expats Abroad Part 2

Discussion on How Tax Reform May Impact Expats Abroad Part 2

Transcript of the above video:

As the video suggests this is a follow-up video to another video we did with respect to Trump Tax specifically. This is a fairly new piece of legislation, in fact in relative terms it is quite a new piece of legislation having only been promulgated back in December of 2017; at the time of this filming we are in early March 2018 so this is fairly new. Everyone is simply getting adjusted to this and trying to understand as best we can how this is going to operate moving forward. 

That being said I am trying to provide as much information as I can based on the research and based on the information I have come across as of the time of this filming. Nothing in this video should be taken as definitive with respect to this issue and moving forward I think it is pretty safe to say that we are going to be looking at, this could be interpreted a million different ways by not only Regulators but Courts, so what I am saying now may not be very reflective of how this legislation is being put into practical use, say three to five years down the road.  We simply don't know how this is going to work. I am simply trying to provide as much insight as I can in sort of an overview nature for those who are interested in these topics so that they can basically gain a little bit of insight.  So some interesting stuff with respect to the international component of the Trump Tax Legislation which as I have read through especially the” raw law”, there is only about 40 pages specifically on international stuff. That being said, that can be a lot especially with respect to how it can be later interpreted etc. notwithstanding the fact that I believe there is 1,100 pages of the enacted legislation, 40 pages may not seem like much, but in terms of raw law  you can get a lot of stuff in there. Just some highlights that I wanted to bring to people's attention in this sort of update and we're going to continue doing updates. There's other videos specific to certain aspects of deemed repatriation as well as the GILTI Provisions, GILTI,  as well as the GILTI Provisions, the intangible tax if you will. We did other videos on those topics I urge viewers who are watching this video to check out those out on this on this channel. So some things to take away out of this video, essentially the net result of the Trump tax is in an international context is moving to what has been called a quasi-territorial system with 100% dividends received deduction so as I read it right now, an onshore incorporated entity that takes dividends from an offshore incorporated entity, so for example let's say you have an onshore incorporated entity, I am just picking this out of the air, let's say Apple Incorporated in the United States,  and they go ahead and pull through dividends directly as a shareholder in say Apple Thailand, I have no affiliation with Apple whatsoever; this is simply just a hypothetical, and they pull through dividends in that manner directly. In the past there could be significant tax ramifications for that. Moving forward it seems at least to me as though that behavior is being encouraged by this tax system and for that reason it looks to me like the tax ramifications are going to at least be far more mitigated compared to times past in situations similar to that just described. However moving forward it remains to be seen just exactly as a practical matter how this is going to operate so we will keep you updated as we see.

This is interesting: one-time tax: one-time tax on previous retained earnings that were not  "repatriated" back to the United States.  So basically from ‘86 up to now, 1986 up to now, you could have an entity that had say retained earnings that were just kept in the offshore entity and not in say a natural American citizen’s name, just like a foreign controlled corporation that is controlled by an American citizen and you have got retained earnings in that entity. It would appear that there is going to possibly be some tax ramifications for maintaining a reservoir of retained earnings. As I see it, it may be 8% or 15 and a 1/2 percent depending on what kind of retained assets those are. So for example cash seems to be 15.5% I will get into that a little bit more in the video on so called deemed repatriation and retained earnings etc. but this is a major change. Again since ‘86 retained earnings in an offshore entity, it was maybe possible to at least defer tax on those or perhaps not have to deal with tax on them at all because they weren't in the United States; they were in an offshore entity and didn't really need to deal with them. Again I don't want to get into specifics on this stuff I'm just trying to provide an overview. There seems to be a lot of so called anti - base erosion provisions in this new rule. There is also, it seems to be part of the provisions of this new legislation are trying to push so called intangible income back on, back onto, for lack of a better term, the balance sheet of an American citizen abroad. So if an American citizen has like a small foreign corporation, I don't know necessarily that they've crafted it to go after these people necessarily, I think it is more in a medium to large-size business environment it's not really for the "little guy" but it is going to have a substantial impact on the "little guy" because the way the stuff has been set up. Basically in the past you could have sort of an offshore entity that didn't necessarily make a lot of income per se, or at least on paper it wasn't making a lot of income, but one could surmise that it had a lot of intangible income for lack of a better term and it seems that this act just for a general just as a general provision or just as a general rule seeking to go ahead and at the very least try to get these intangibles onto the books as much as possible or disclosed up as much as possible so they can get a better idea where that sits. Failure to do that could result in some tax ramifications, even for an American overseas or an American company or controlled foreign corporation overseas. Those are kind of the basics of how I see the big changes playing out with respect to Americans abroad, with respect to Trump Tax; those are kind of the basics with respect to Americans abroad with a company.

Part 1 of this sort of two-part video really pertained to individuals abroad, this second video, the second video the thing to take away from it is, there is going to be a lot of provisions in the Trump tax as I see it that are going to have a substantial impact on American citizens with companies overseas and it is going to impact a pretty wide spectrum because it looks to me like anybody that's  got a foreign shareholding of 10% or more is going to be impacted by this. It may not be a huge impact especially for those who are US citizens operating abroad but they are operating business that doesn't make a great deal of money, you know, they have been filing their taxes and it's just not a big deal but again retained earnings are an interesting aspect of some of the changes to the law. This  GILTI,  these intangible taxes if you will, it looks to me like they are trying to pierce through and get a better idea on entities that Americans are using overseas that are murky, for lack of a better word.  They are sort of opaque with respect to sort of where the company's assets end and where the American citizens assets begin or earnings begin and for that reason they have created a system that in my opinion is going to incentivize better disclosure in an effort to go ahead and mitigate tax liability especially on things that in the past you could just sort of, not fudge the numbers,  but just sort of didn't really have to overly worry about and now again I am speaking from a perspective of not necessarily a large multinational corporation because that's not how they are thinking but just sort from the perspective of small one man band operation where you have got just one single entity abroad, how is  GILTI  going to affect that individual it's hard to say especially where that individual makes a lot of their money in cash etc.  GILTI  could have a tremendous amount of impact especially individuals that have maintained large reservoirs of retained earnings, that can have a substantial impact on those individuals so we will keep you posted as things progress on this channel and try to provide at least some basic insight into how this operates. Again another thing to take away from this video, those who think that they have issues with respect to the topics I have just brought up, I strongly, strongly advise you to contact a legal or tax professional in order to get some further insight into these matters in order to place oneself in the best position, the best posture legally and also to try and mitigate as many obligations or liabilities in as legal a manner as possible.