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1 Kyle Pomerleau, A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act 1 (2018)

handle is hein.taxfoundation/hybapt0001 and id is 1 raw text is: FISCAL FACT No. 586 May 2018 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. @2018 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act Kyle Pomerleau Director of Federal Projects Key Findings * The previous worldwide or residence-based corporate tax system was flawed as it encouraged corporations to invert, discouraged corporations from repatriating foreign profits, and created a competitive disadvantage for U.S. corporations operating in foreign countries. * Lawmakers addressed these issues by enacting reforms to the international tax system as part of the Tax Cuts and Jobs Act (TCJA). * The TCJA enacted reforms that moved towards a territorial tax system by exempting foreign profits from domestic taxation. At the same time, it enacted anti-base erosion provisions targeted at high-return foreign profits, intangible income, and income stripped out of the United States. * The four main components of the new international tax system are the participation exemption, the GILTI, the FDII, and the BEAT. * While lawmakers generally refer to the new system as a territorial tax system, it is more appropriately described as a hybrid system. * The general structure of the U.S. system is not unique in the Organisation for Economic Co-operation and Development (OECD) as most countries that have moved to territorial tax systems have also introduced anti-base erosion provisions. However, these U.S. provisions are structured differently from those of other countries.

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