U.S. Citizens and Green-card Holders Living Abroad With Interests in Non-U.S. Companies are Subject to the 15.5% Repatriation Tax

NEW YORK, February 5, 2018 /PRNewswire/ --

Worldwide First as Published in The Financial Times 

Monte Silver - Eitan, Mehulal & Sadot: one of the major provisions of the U.S. Tax Reform forced large U.S. companies like Apple and Google to pay a sizable tax on profits they held outside the U.S. in their foreign subsidiaries (called CFC -controlled foreign corporations). Under the reform, all profits of these CFCs that accumulated between 1986 through December 31, 2017 are treated as income to their U.S. parent company (Apple and Google, for example) and taxed at 15.5% for profits held in cash form, and 8% for profits held in non-cash form.

This new law has major unintended consequences for American individual expats (U.S. citizens or Green Card holders) living outside the U.S. who own or have interests in companies incorporated outside the USA. Why? The U.S. reform treats such individuals exactly the same way as it treats large U.S. corporations. Therefore, if an American expat owns at least 10% of a foreign corporation, and over 50% of that foreign corporation is owned by Americans, that corporation is a CFC for purposes of the tax. Accordingly, the individual U.S. expat will pay the same tax as Apple on accumulated profits.

Monte Silver, an experienced U.S. tax lawyer working at the Israeli law firm Eitan Mehulal Sadot, first uncovered this issue. Monte, who previously worked at the I.R.S. and the U.S. Tax Court, is working on finding solutions to the problem, and advocating to change this unintended consequence.

Monte Silver commented: "Many American expats conduct their business through companies in their countries of residence. For expats, working through a CFC has several income tax and U.S. social security-related benefits. While Trump and the U.S. congress were focusing on multinational corporations, they simply did not notice that U.S. expats were subject to the same penalty. This provision does not only impact the super wealthy. No matter what the size of the CFC, its accumulated profits are subject to a huge 15% tax.

"There are also serious questions as to whether this tax, payable to the U.S. starting 31 December 2017, will be entitled to tax credit in the expat's country of residence. Or alternatively, whether the expat will be able to avoid the U.S. tax by having the CFC distribute a post-2017 dividend, paying personal income tax on the distribution in the country of residence, and then seeking a foreign tax credit against this new U.S. tax. This opens the very real possibility that despite tax treaties, expats will effectively pay tax twice on this money - to the U.S. now, and later to the country of residence when the CFC distributes dividends."

For the full story see: https://www.ft.com/content/cb6762f4-09b9-11e8-8eb7-42f857ea9f09

For media enquiries please contact:
Laura Moss
lmoss@theproffice.com  

Aaron Bass
abass@theproffice.com
+44-207-284-6969

Monte Silver
montes@ems-legal.com
+972-9-972-6000