Insurers may face a higher 2017 income tax bill, under a new decision from the Internal Revenue Service (IRS) affecting firms with stakes in insurance companies overseas.
The IRS has decided that firms will have to include their aggregate foreign cash position in their overseas subsidiaries when calculating the one-time “transition tax” imposed on their foreign divisions’ earnings and cash being repatriated to the US. The IRS decision is not yet official, as it will be published on August 09. However, an early version was made available to the public on its website.
According to the IRS, the regulations aim to reduce double counting and produce more equitable tax outcomes across otherwise similarly situated taxpayers. Such rules disregard receivables
and payables between related specified foreign corporations with a common US shareholder, and also prevent double-counting and non-counting in the computation of deferred earnings arising from amounts paid or incurred between related parties between measurement dates.
According to the Treasury, the Tax Cuts and Jobs Act passed last year treats untaxed foreign earnings as repatriated and places a 15.5% tax on cash or cash equivalents, and an 8% tax on the remaining earnings. Generally, the transition tax can be paid in installments over an eight-year period when a taxpayer files a timely election.
“The Tax Cuts and Jobs Act creates a historic opportunity for American companies to bring capital back home from overseas to invest in our domestic economy and create jobs for hardworking Americans,” said Treasury Secretary Steven Mnuchin. “Our administration’s policies are focused on creating a more competitive system for business, which has already led to greater economic and wage growth.”
