 Hello and welcome to the session. This is Professor Farhad and this session we're gonna be looking at the US tax reform of 2017 and other international tax provision. This topic is covered in international accounting or international taxation course, also CPA and ACCA exam. If you haven't connected with me on LinkedIn, please do so. YouTube is where I house all my 1,500 accounting, auditing, tax and finance lectures. This is a list of all the courses that I cover. Please subscribe, share the channel, like them. It will help me tremendously. Also on my website I do have additional resources in addition to the lectures. I have notes, PowerPoint slides, multiple choice through false and other questions and 2000 plus CPA questions. StudyPal.co is an artificial intelligence driven study body platform that matches you with a CPA, CFA or any other test. StudyPal has users in 85 countries and 2,500 cities. Please check them out. The Tax Cuts and Jobs Act of 2017 made the most extensive changes to international tax provision since 1986. The objective was to make the US corporation more competitive internationally. So what they did, they lowered the rate from 35% overall to 21% flat rate and prevent the erosion of US tax space. It means they don't give you incentive to go international anymore. So the most significant change was the adoption of a territorial, partial territorial system which is participation exemption system in which most foreign subsidiaries is exempt from US taxation. And we discussed this topic pretty much in detail in this course, which as you can see in the playlist for this chapter. Other major international tax provision which we're gonna be discussing are the deemed repatriation of accumulated foreign earnings, taxation of global intangible low tax and gamut is guilty, and the imposition of a base erosion anti-abuse tax. And this topic will cover the first topic, which is the deemed repatriation of accumulated foreign earnings. What's the big idea? The big idea is this. Prior to 2018, the money was kept overseas. So the US companies had an incentive not to bring that money back home, okay? By the foreign subsidiaries. Now, again, we always use the island as an example but doesn't have to be in an island. They can be anywhere, okay? In a tax haven countries because dividend received from low tax income countries resulted in additional tax being paid. So some observer, based on different studies, they said there was closer 3.1 trillion dollar in overseas earning, which that's a lot of money. And what happened after the financial crisis, the US government needed every penny. So that's why they had every incentive to do something to change the law to bring that money. So here's what the Tax Cuts and Jobs Act do. It required US companies to include under 2017, US tax return, foreign subsidiary income earned from 1987 through 2017, why 1987? This is when the law changed that had not previously been taxed in the US. Okay, in other words, accumulated earnings of foreign subsidiaries generated during those 30 years, deemed to have been repatriated, brought back to the US. Deemed means whether you brought it or not, you're gonna pay taxes on it. But once you pay taxes, you can bring it, no problem. Now you might be saying, how can the government do so? Well, it's the government, that's the law, but of course they gave the corporations many incentive to do so. So it's not like, okay, now you have to pay the taxes for 30 years of earnings, they're gonna give them a lot of incentives. So although the US corporate income tax rate was 35%, the deemed repatriated earnings were taxed at a greatly reduced rate. Okay, let's look at it. 15.5% of retained earnings held in cash and cash equivalent. So if you have those earnings in cash and cash equivalent, you only paid 15.5 rather than 35. 8% of retained earnings that has been reinvested in non-cash assets. So if you invested that money in assets, well, in property, plant and equipment, now we're gonna only charge you 8%. It's not only that, the tax law gave you eight years to make installment payments. So you pay your taxes over eight years. Also the foreign tax credit was allowed to reduce the US parent company, US tax liability on the deemed repatriated dividend. Simply put, if you have any credit, foreign tax credit, you can use that credit against that deemed repatriated income. So as a result, additional US tax was owed on the current only if the average effective tax rate was less than 15%, less than 15.5 for the earnings held in cash. So simply put, if you would only have to pay taxes, if your rate was less than 15.5, assuming you held it in cash, and less than 8% if you held it in non-cash asset. So simply put, they gave you a lot of good, lot of incentives to bring that money back and pay minimal taxes, but bring the money back to the US now, to the US corporation, can you? Let's take a look at an example and see how this all fits together. Let's assume from the period of 1987 to 2017, foreign subsidiaries of multi-million corporation, a US tax payer generated an aggregate before tax income of 10 million upon which they paid 1.2 million. So they already paid overseas 12%, 12% on that income. Okay, over the years, the foreign subsidiary repatriated 2 million. So they generated 10 million in total. Let me just do this. They generated 10 million. They already brought back in the US 2 million, and when they bring it back, obviously they pay taxes on it. So what's left is 8 million. What's left is 8 million that's overseas, and on that 8 million, they already paid 12% of that foreign country. So the 8 million of accumulated earning was held in cash and cash equivalent by the foreign subsidiary, okay? So multi-million, so here's what they did in 2017. They have to say it's deemed to be repatriated of $8 million. So they have to include in their income an amount of $8 million. So let's see what the taxes on this. So let's, these earnings, the 8 million were subject to a one-time tax of 15.5. Now, 15.5 means 1,240,000 in taxes, which is 8 million times 15.5 before subtracting the foreign tax credit. Now, remember the multinational already paid at 12%, okay? So simply put, 8 million times 12%, 8 million times 12%, they already paid 960. So what's gonna happen, the net amount that they're gonna pay for the US government is only 280,000, because this is the tax bill based on the new tax law. This is the tax credit for the 12%. Simply put, they're only responsible for 280,000, okay? So if the foreign accumulated earning has been invested in a non-cash asset, such as property, plant and equipment, the tax rate would have been 8%. And guess what? 8% is lower than 12.12% that they paid and that situation, they wouldn't have to pay any taxes, okay? In that case, multi-million would not have to pay any tax to the US on the accumulated earning because the tax before the FTC is 640, okay? And remember, the foreign tax credit is 960, the tax is 640, you have more credit than you are good to go. So this is basically the topic here. Now in the next session, we'd look at the other incentive that they gave them, which is the intangible low tax, a global intangible low tax income, which is called Guilty. We would look at this topic. If you have any questions, by all means, email me. If you want additional resources such as the PowerPoint slides, notes, the multiple choice questions, and additional resources for your CPA exam, visit my website, consider subscribing. 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