Trump Repatriation Tax Proposal
The U.S. has the one of the highest corporate income tax rates among developed economies, causing many U.S. companies to leave earnings overseas in an effort to avoid taxes. Estimates vary, but it is believed that U.S. entities hold abroad about $2.5 trillion. Under current rules, companies can defer the tax if profits are left outside the U.S. The reason that taxes may be deferred is that, even though the U.S. applies the worldwide income tax concept, the foreign income is not subject to taxation until the income is returned to the U.S., usually as a dividend.
President Trump’s proposal includes a special tax break allowing firms to bring back money held overseas and pay a lower, one-time tax. Although some reports suggest that the rate will be 10%, the president’s recent proposal did not offer details, and so it is uncertain what the tax rate would be. It is also uncertain whether this measure would directly generate job growth and hiring. Prior administrations have used similar measures and the U.S. Senate study showed that repatriated funds mostly went to stock buybacks and dividends.