For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Synopsys Inc., a U.S. electronics company, plans to repatriate up to $850 million of overseas earnings—a move that may reflect concerns among multinationals that certain tax benefits could disappear under tax reform, practitioners said.
“A lot of companies are anticipating with tax reform that certain carried forward credits could potentially be impaired or lost altogether,” said David Sites, an international tax partner at Grant Thornton LLP. There’s a high likelihood that a potential repatriation holiday or deemed repatriation through tax reform would include a flat tax that companies aren’t able to offset with tax credits they’ve accumulated, he said.
Therefore, some companies may want to repatriate earnings now while they can use credits or other tax attributes, especially if they think they can bring back the cash at a lower rate than what may be offered in tax reform, Sites and other practitioners said. This was likely a driving factor in Synopsys’ decision, they told Bloomberg BNA.
The company announced Sept. 8 that its board of directors had approved a plan to repatriate approximately $775 to $850 million of cash currently held offshore during the fourth quarter of fiscal year 2017.
“The repatriation is planned in anticipation of potential corporate tax reform, and the company expects to be able to realize the benefit of its existing” research and development “tax credits to reduce the tax payment on the repatriation,” the company said in a news release.
Similar to Synopsys, Ford Motor Co. announced in July a decision to bring back overseas earnings and related foreign tax credits in anticipation of corporate tax reform. Other companies may be set to follow, said Paul Schmidt, a partner at Baker & Hostetler LLP with experience in corporate and international tax matters.
“Companies don’t want to be in a position where they didn’t utilize their attributes efficiently and end up paying tax that they didn’t have to,” said Schmidt, a former legislation counsel to the Joint Committee on Taxation.
However, in order for a company to consider a repatriation like Ford and Synopsys, the move likely has to make sense independently of tax reform, with the potential for reform pushing the company over the edge, he said. “I don’t think the prospect of tax reform is significant enough at this point that companies would decide to make a decision that they weren’t otherwise inclined to do.”
Prime candidates for a pre-reform repatriation may include companies with expiring foreign tax credits or companies that need the cash, he said.
Lawmakers and the White House have indicated support for a deemed repatriation in tax reform.
The House Republican tax reform blueprint set an 8.75 percent tax on cash and a 3.5 percent tax on other assets, and would allow payment over eight years. The White House in an April tax reform outline expressed support for a one-time tax on offshore earnings. Neither document mentions whether corporations would be able to use tax credits to offset a repatriation tax.
Past history would suggest they wouldn’t be able to, said Robert Willens, president of tax and consulting firm Robert Willens LLC in New York.
As part of the Homeland Investment Act of 2004, Congress permitted corporations to repatriate overseas income at a reduced rate of 5.25 percent in 2005 and 2006.
Companies weren’t allowed to use tax credits then, Willens said. They had to pay the entire flat tax rate of 5.25 percent, he said.
Sites said he is encouraging his clients to take advantage of potential pretax reform planning. “I think there’s tremendous opportunity to look at your earnings and profits, your foreign tax credit pools, and your other significant tax attributes and say, ‘Does it make sense to do something different or to do some proactive planning ahead of tax reform?’”
The greatest opportunities are in areas where companies would get an advantage by planning now and wouldn’t necessarily be at a disadvantage if tax reform doesn’t happen, Sites said.
This can be the case for companies that have accounting methods they are employing outside of the U.S. to calculate the amount of unremitted earnings they have, he said.
Those companies can file for elections to change their accounting methods. In the past, there might not have been a lot of value added by making such an election “because if those earnings were staying outside the United States and you changed an accounting method, all you would do is change the amount of earnings that you otherwise are shielding from U.S. taxation,” Sites said. That calculus changes as companies consider pretax reform planning strategies, he said.
For example, if a company is able to change an accounting method for deferred revenue and can shift earnings and profits that are in a controlled foreign corporation today out into a future year, that company may find itself in a situation where those earnings and profits are subject to zero tax in that future year because the U.S. may have shifted to a territorial tax system, Sites said. In a territorial system only domestic income is taxed by the U.S.
Companies don’t want to miss out on these types of opportunities that competitors may be taking advantage of, Sites said.
To contact the reporter on this story: Allyson Versprille in Washington at email@example.com
To contact the editor responsible for this story: Meg Shreve at firstname.lastname@example.org
Text of Synopsys news release is at http://src.bna.com/sqF.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)