On 29 December 2017, the Treasury Department and the Internal Revenue Service issued Notice 2018-07, which provides guidance for computing the “transition tax” under recent tax legislation enacted on Dec. 22, 2017.
In general, newly-issued Section 965 of the Internal Revenue Code provides for transitional taxation of untaxed foreign profits of foreign subsidiaries of US companies by treating these earnings as repatriated. Foreign income in the form of cash and cash equivalents is taxed at a rate of 15.5 percent, and the remaining profits are taxed at a rate of 8 percent. The transitional tax can usually be paid in installments over a period of eight years.
Notice 2018-07 describes regulations that the Treasury Department and the IRS intend to issue, including rules for determining the amount of cash and cash equivalents for purposes of applying the 15.5 percent rate and rules for determining the amount of foreign earnings subject to the transition tax. These rules will help taxpayers by providing certain additional information to calculate their transitional tax. Notice 2018-07 requests comments on the rules described in the notice and also requests comments on what additional guidance should be issued to assist taxpayers in computing the transition tax. The Treasury Department and the IRS expect to issue additional guidance in the future.
Notice 2018-07 will be published in IRB 2018-04 on Jan. 22, 2018.
