Tax Considerations of Repatriation: Previously Taxed E&P, Non-PTEP, Return of Capital, Multi-Tiered Distributions

Description

Before the 2017 Tax Act multinationals businesses avoided paying U.S. taxes by not repatriating foreign earnings to its U.S. shareholders. Profits stayed in the country of origin or were repatriated to the U.S. and taxed. Under Section 965 of the same tax act, a transition tax was levied on all previously unrepatriated earnings. Now even though the tax rates are lower, the decision to repatriate earnings is much more complex.

Distributions are made from previously taxed earnings and profits (PTEP) first. Although these earnings were previously taxed, foreign tax credits and foreign currency gains and losses must be considered. Following PTEP, distributions are made from non-PTEP. For non-PTEP distributions, a DRD (dividends received deduction) under Section 245A may be available.

Once E&P is exhausted, shareholders have a return of basis and calculations of potential gains to consider. Further complicating the calculations are tiered multi-national corporations. Here calculations can be required at each level and recharacterization of gains under Section 1248(c)(2) may need to be considered. Advisers to multi-national businesses and shareholders need be aware of the tax implications of returning money to its U.S. investors.

Listen as our authoritative panel explains the issues that must be addressed when repatriating earnings to U.S. shareholders.